Issue No 296 - 26 Jan 2009
Moody's may downgrade Alaqaria rating

Moody's Investors Service has placed the A2 local and foreign currency issuer ratings for Qatar Real Estate Investment Company (Alaqaria) under review for possible downgrade.

The moves come following the new Qatari government directive to merge Alaqari with Barwa Real Estate Company.

Moody's has also placed the $300 million Trust Certificates (sukuk) issued by Qatar Alaqaria Sukuk Company (QASC) under review.

'Given limited information provision at this stage, Moody's review will focus on the impact the merger will have on the business and financial risk profile as well as any changes in the government ownership and implicit support assumptions that currently underpin Alaqaria's A2 ratings,' said Martin Kohlhase, a DIFC-based assistant vice president and lead analyst for Alaqaria.

'Alaqaria's stand-alone rating is susceptible to a potential downgrade as it is currently weakly positioned because of a highly-levered capital structure in a weakening macroeconomic environment,' he added.

The ratings have been placed under review for potential downgrade as Alaqaria's Baseline Credit Assessment (BCA), or standalone rating, of 8-10 (Baa-range) is weakly positioned.

This is mainly because of high financial leverage (Debt/EBITDA of 8.9 times per December 31, 2007) and low interest coverage (EBIT/Interest expense of 1.9x).

The ratings have to be reviewed in the context of the credit metrics, the evolving capital structure and new financial policy of the combined entity, he added.

Alaqaria's current BCA factors in the low-risk nature of its business model stemming from long-term rental income from government related entities, which Moody's will evaluate should it become diluted following the merger with Barwa.

This could lead to a downgrade of the BCA as it results from a departure of one of Moody's fundamental assumptions - Moody's views QREIC as an ancillary service provider to the government - upon assigning the BCA.

Qatari Diar, an entity that is 100 per cent owned by the government of Qatar, holds substantial stakes in both Alaqaria (27 per cent) and Barwa (45 per cent).

Source: Trade Arabia News

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