Fitch affirms Majid Al Futtaim Holding LLC at 'BBB'; stable outlook

Fitch has also affirmed MAF's Short-term IDR at 'F3'. The rating of MAF Global Securities Limited's global medium-term note (GMTN) programme and MAF Sukuk Ltd were also affirmed at 'BBB'.

The ratings continue to reflect Majid Al Futtaim Holding LLC's (MAF's) status, through the property arm of the group, Majid Al Futtaim Group Properties LLC (MAFP), as one of the largest property investment companies in the Middle East and North Africa region (MENA).

Key Drivers

Resilient Performance: MAF maintained solid performance and financial metrics in 2011 and 2012, due to its active asset management. Operational performance was resilient, with the occupancy rate remaining at 98%.

MAFP benefits from an average lease length of 8.1 years, which compares well with European peers, a high-quality and diversified tenant base exhibiting an estimated above 95% lease renewal rate, and a low tenant default rate of below 1%.

Strong Interest Cover: Fitch expects MAF's EBIT (MAFP rental-derived EBIT and dividends received from MAFR) net interest cover to remain strong, at about 3x in 2012. Although MAF's development pipeline remains large, with potential development exposure of more than Dhs21bn in the coming five years, the capex is mainly discretionary, not committed, and the maximum exit cost for committed capex at any particular year would be in the range of Dhs500m.

Improving Maturity Profile: As of December 2012 MAF had over Dhs7.4bn of liquidity (cash plus available committed lines), of which Dhs5.8bn is at the level of MAFH and MAFP. Over 2011 and 2012 MAF improved its maturity profile to an average of four and a half years. Nevertheless, the group still faces moderate refinancing risks over the next few years, with almost Dhs1.9bn maturing/amortising in 2013 and 2014 and the upcoming maturity of the 2014 undrawn revolving facility totalling Dhs2.5bn.

Benefit of MAFP: MAF is rated on a standalone basis, including the benefit of MAFP, which guarantees the majority of MAF's debt. As part of its analysis of the group, Fitch calculates the ratio of unencumbered assets to unsecured debt and expects this ratio to be maintained well above 2x for an investment-grade rating.

Significant Retailer: Through MAF Retail LLC (MAFR), MAF is also one of the most active retailers in the region, with the exclusive franchise for Carrefour S.A. ('BBB'/Stable) in the Middle East, covering 19 countries mainly in MENA and central Asia.

Gifted Land: Two large properties have been developed on land gifted to the ultimate sole shareholder of MAF, Majid Al Futtaim. These properties are held in the shareholder's name for the beneficial interest of MAF. Properties which are built on land gifted by the ruler of Dubai cannot currently be sold or finance leased, separately, without the prior consent of the ruler. This limitation has an impact on the enforceability of these assets under a stress scenario. Fitch also notes that existing law/rules allow the company to get the tittle transferred after payment of applicable fee.

Market Downturn: Downgrade pressure would occur if there was a significant downturn in the markets in which MAF operates, leading to material falls in rental income and interest cover falling below 1.5x over a sustained period. A liquidity shortfall in, and/or a material reduction in dividends from MAFR would also be considered negative rating factors.

Improved net interest coverage (NIC), Lower Leverage: Upward rating pressure would arise if NIC were sustained above 3.0x, and deconsolidated Fitch-adjusted leverage below 40%.

In FYE2012 net debt levels were down to Dhs7bn (Dhs7.5bn in FYE2011), mainly due to better than expected operational performance. MAF Holding strengthened its liquidity by proactively refinancing $1.5bn of maturities of 2012 and in 2011. This allowed MAF to lengthen the average tenor of debt from 3 to 4.5 years at YE2012, and smoothen the maturity profile such that not more than 20%-25% of debt falls due in any year. Nevertheless, the group still faces moderate refinancing risks over the next few years, with almost Dhs1.9bn maturing/amortising in 2013 and 2014 and the upcoming maturity of the 2014 undrawn revolving facility totalling Dhs2.5bn.

Also, MAF holdings secured debt have been reduced significantly, bringing secured debt down to 7% of total debt as of 2012 (46% in 2011).

Fitch also notes that MAF continues to have access to bank facilities, from domestic and international banks.. MAF is expected to further diversify its funding sources and extend its debt maturity profile.