Moody's assigns A1 ratings to DIFC Investments

Moody's said that DIFC Investments' A1 rating reflects its status as the 100%-owned subsidiary of DIFCA, the executive body responsible for developing and administering the Dubai International Financial Centre (DIFC). DIFC was established as a financial free zone in the Emirate of Dubai under Federal Decree No.35 of 2004 and through the subsequent enactment of the Emirate of Dubai Law No. 9 of 2004 (the Law), and
prior grant of 110 acres of prime land. The A1 rating therefore reflects the application of Moody's rating methodology for Government Related Issuers (GRI) and as such the rating combines: (i) the company's underlying strength, or Baseline Credit Assessment (BCA), which is ranked as a "5" -- equivalent to an A1 on Moody's global scale; and (ii) the credit support likely to be provided in a distress situation by the Government of Dubai and His Highness Sheikh Mohammed Bin Rashid Al Maktoum, who is the Vice-President and Prime Minister of the UAE and Ruler of Dubai, and who as DIFC's President appoints the Chairman of DIFC Investments' Board of Directors.

Niel Bisset, a Senior Vice President at Moody's and lead analyst for DIFC Investments said that, 'the BCA of 5 reflects that Moody's considers DIFC Investments to be effectively a government agency given its critical role in the development of DIFC as a financial free zone, an initiative which is considered central to the
diversification and strengthening of the Dubai economy.' The Law states that DIFC, 'shall be attached to the Government', and that DIFCA, 'shall have an independent budget and the Government shall provide sufficient funds for this purpose.' The BCA of 5 therefore factors in Moody's expectation that DIFC Investments will benefit from continuing ordinary course support by the government (as distinct from an extraordinary bail-out), including, potentially, additional land grants, or other financial support, which offsets the challenges it faces -- including a large real estate development programme, debt financed investment strategy, rising debt levels over the programme period, and reliance on capital markets for financing.

Because DIFC Investments is wholly owned by DIFCA, the executive body appointed by His Highness Sheikh Mohammed to deliver the Government's vision for the Dubai International Financial Centre, Moody's overlays the company's BCA with its estimate of the likelihood that in the event of impending failure by the company, the government would step in with assistance sufficient to prevent default. Moody's said it views the Government's near-certain willingness to support DIFC Investments as "high" considering the economic importance of the financial free zone, and the government's involvement in budget approval and other administrative and policy-related processes. Because of the financial free zone's closeness to and link with the Dubai economy overall DIFC Investments' dependence factor is also scored as "high" Moody's added.

2004 included as objectives for DIFC the promotion of the Emirate as a leading international financial centre, and the development of the economy of the Emirate. The development of DIFC is seen as critical to ensure the financial services sector becomes a major driver of Dubai's economic growth as envisaged by the Dubai Government's Strategic Plan, and which DIFC sees should be contributing 30% of Dubai's GDP by 2015 from 4% currently. Moody's added that notwithstanding the likelihood of competition from other regional financial centres, the DIFC's infrastructure and governance model should position the financial free zone well to achieve its broader objectives including expanding regional capital markets and creating an additional 45,000 'knowledge jobs' in the Emirate.

The rating agency said that DIFC Investments' BCA of 5 takes account of DIFC's business and financial strategy for delivering on its mandate through DIFC Investments, which was itself created in November 2005 and effectively capitalised through the transfer of DIFC's land and financial assets, formerly held by DIFCA.
DIFC Investments' three broad areas of activity over the period of its business plan include: (1) the ongoing build-out and management of DIFC's infrastructure, comprising six districts with an ultimate Gross Floor Area (GFA) of circa 2.2 million square metres; (2) the ongoing investment in a portfolio of strategic assets, the income from which it plans to use to complement the lease income it derives from completed and let space; and (3) investment in and development of the Dubai International Financial Exchange (DIFX), which represents an important part of DIFC's overall offer to prospective tenants.

The BCA of 5 factors in the successful completion of the Gate District ahead of schedule in 2006, and the apparent demand for office space currently under construction. However, Moody's considers a challenge
completion of the remaining 90% of GFA on time by 2010 and within budget, and highlights the potential risk that demand for space could fall short of current expectations, even if current market conditions are favourable. Moody's also notes that DIFC Investments intends to finance its activities by using organic cash flows as well as by borrowing, partly on a limited recourse basis, and that debt could rise to more than $5 billion by 2009 from the $643 million reported at end-2006. In this connection, Moody's expects loan-to-value ratios could be relatively weak over the next few years, and notes the risk that dividend distributions from the planned strategic investment portfolio could be subject to market volatility.

Moody's said that DIFC Investments' rating outlook is stable, reflecting its close links and importance to the Government of the Emirate of Dubai whose credit outlook Moody's also considers to be stable.

DIFC Investments LLC, based in Dubai / UAE, is a wholly owned subsidiary of Dubai International Financial Authority (DIFCA), and incorporates all the commercial activities undertaken on behalf of the Dubai International Financial Centre, Dubai's federal financial free zone.