x Abu Dhabi, UAEWednesday 17 January 2018

Warning over downgrade puts DIFC Investments under pressure

Ratings agency Standard and Poor's warns that DIFC Investments, the investment arm of Dubai's financial free zone, may face a potential downgrade as planned asset sales flounder.

Standard & Poor's has warned of a potential downgrade of the credit rating of DIFC Investments, the investment arm of Dubai's financial free zone, if it cannot make progress selling assets and refinancing its upcoming debt repayments by the beginning of next year.

The credit rating agency raised the alarm in a report this week warning of the sluggish pace of asset sales at DIFC Investments, which is attempting to repay a US$1.25 billion (Dh4.59bn) sukuk that comes due next June.

While S&P said it was highly likely that DIFC Investments would receive support from the Dubai Government, the ratings agency warned that a lack of progress in asset sales or refinancing efforts could trigger a downgrade of DIFC Investments' credit rating.

"DIFC Investments' non-core asset sales have taken longer to realise than we initially anticipated," the report said. "Regional political unrest and battered equity markets are, in our view, not making the job any easier."

S&P warned that the increased likelihood of a debt restructuring or distressed exchange offer could also trigger a re-rating.

Amid the new uncertainty, yields on the company's sukuk rose to 10.7 per cent yesterday, having fallen from highs of 19.5 per cent early last month.

DIFC Investments reported a loss of $272 million for last year, down from $562.3m in 2009.

In July, it emerged that Investment Corporation of Dubai, a holding company owned by the emirate's Government, was in talks with DIFC Investments over its asset sale programme.

The company amassed a number of assets with little relevance to the operations of the Dubai International Financial Centre in the years preceding the financial crisis.

Its stakes include Dubai Aerospace Enterprise, a manufacturer of aircraft systems, and Villa Moda, a Kuwaiti luxury department store, which was sold in 2009.

S&P assigns a "B plus" rating to DIFC Investments, with a "negative" outlook. Representatives of DIFC Investments could not be reached for comment.