Tamweel's notes were upgraded by Fitch ratings agency yesterday as the collateral pool showed strong performance along with the stabilisation of the Dubai property market and the upgrade of its servicer and originator-Tamweel.
Tamweel's securities receive rating boost
Fitch ratings lifted its outlook on Tamweel's Sharia-compliant residential mortgage-backed securities (RMBSs) as its underlying assets have performed well and the Dubai property market stabilises.
Tamweel Residential assets fund a portfolio of Sharia-compliant property leases due from mainly non-Dubai nationals working in the emirate.
Since inception, there have not been any reported defaults, the ratings agency said.
"Fitch believes that this is due to the nature of the lease contracts, which allow the lessees to terminate the contracts voluntarily without further payment obligation," it said. "As the property titles are with the originator, these are being sold or repurchased by Tamweel and the proceeds are passed on to noteholders."
To date, 334 of initially 595 properties have been sold or repurchased. The generated proceeds have accounted for 62 per cent of collateral collections and are continuing to fund a large portion of note payments. As of June, the collateral pool totals 254 leases.
"We believe this is positive news, as higher ratings on Tamweel's RMBSs increase its long-term funding options beyond finance coming from Dubai Islamic Bank, which has Dh19 billion worth of cash balances," said Jaap Meijer, an analyst at AlembicHC in Dubai.
Tamweel's rating was upgraded following Dubai Islamic Bank acquiring a controlling interest in the company. The Dubai property market experienced rapid growth in 2007 with house prices doubling within one year. After suffering a 50 per cent drop in 2008, it has now been stable since 2009 and Tamweel returned to profitability last year on the back of declining provisions and improved funding costs.
"Earnings could strengthen further after Tamweel resumed lending in the first quarter of this year after a two-year delay," Fitch said. "New business originated by the company is highly selective and in Fitch's opinion, does not unduly compromise its risk position given that property prices are 50 per cent below the peak."