Fitch assigns expected 'AA-' rating to DEWA's Sukuk

This follows the assignment on Thursday 1 November 2007 of a Senior Unsecured Rating and Long-term Issuer Default Rating (IDR) of 'AA-(AA minus)' and a Short-term IDR of 'F1+' to the Dubai Electricity & Water Authority (DEWA). The Outlook for the Long-term IDR is Stable. DEWA is the exclusive, vertically-integrated electricity and potable water utility in the Emirate of Dubai and is fully state-owned.

The final rating for the Sukuk issue is contingent upon receipt of final documentation conforming materially to information already received (preliminary prospectus dated 12 October 2007).

The issue will comprise of certificates falling due in 2012 and 2017, representing an undivided beneficial ownership interest in trust assets. Principal cash flows will include the payment by the issuer to DEWA as the seller of a package of assets of the issuance amount. On each periodic distribution date, DEWA will pay to the issuer an amount reflecting the rental due in respect of the lease assets. Each payment is intended to be sufficient to fund the corresponding distribution amount payable by the issuer under the certificates.

Sukuk investors should be aware that DEWA has issued $1bn under a $3.7bn securitisation programme. Pursuant to the securitisation, it has undertaken to assign some utility receivables. These receivables are not available for the purpose of servicing the Sukuk debt, nor are an estimated 13% of receivables that currently relate to sales to the government and that will be settled in the form of credit notes. If management were to increase the drawings under the securitisation programme, this would lead to an assignment of further receivables, which could possibly result in a downgrade of the Sukuk rating to reflect subordination risk.

Management has, however, stated that it is not currently its intention to make any further drawings under this programme, and that discussions are in progress regarding the conversion of government accounts to the same payment basis as other accounts. This risk is also partly offset by the expected growth in cash flows on the back of increased volumes and proposed tariff increases and the government's intention to reduce the percentage of non-cash settled payments. For the Sukuk rating to remain the same as DEWA's long term IDR, Fitch would require projected interest coverage based on cash flows available to holders of Sukuk debt to remain comfortably above one time.