The FINANCIAL -- London/Dubai-01 June 2011 -- Fitch ratings has affirmed
Qatar Real Estate Investment Company P.Q.S.C.'s (Alaqaria) Long-term
Issuer Default Rating (IDR) and senior unsecured rating at 'BBB+', and
its Short-term IDR at 'F2'.
The Outlook on the Long-term IDR is Stable.
Qatar Alaqaria Sukuk Company's (QREIC) USD300m Sukuk bonds (due 2012) senior unsecured rating has also been affirmed at 'BBB+'.
The ratings reflect its strong business model, robust lessor profile and above-average lease duration for the region. Finance leases provide stable, long-term rental income, which are underpinned by off-take arrangements with Qatar Petroleum (QP) and government-related entities (typically 10-15 years' duration), and operational leases agreements of between five and 25 years with QP-related companies. These arrangements have provided Alaqaria with sound defensive qualities during the region's property downturn, as has been proven by the stable financial performance of the company to date.
The ratings also reflect Alaqaria's low counterparty risk, as most of its projected income is due to come from strong credits, and the benefits from a guaranteed rate of return on its contracts with QP or QP-related entities. Under Fitch's parent and subsidiary methodology, Alaqaria's 'BBB+' rating benefits from a two-notch uplift from its standalone rating of 'BBB-' to reflect the strategic and operational relationship with state-related entities as a leading developer of long-term rental housing projects for both the state and corporates in Qatar. Any change in the government implied support, commitment or ownership of Alaqaria could also have negative rating implications for Alaqaria.
Alaqaria's ratings continue to be constrained by being under-capitalised (equity base of QAR2.2bn as of FYE10), in view of the large forward order book (approximately QAR9bn uncommitted, only QAR150M committed) and the associated increase in future funding requirements. Alaqaria's ratings also reflect its high leverage loan-to-value ratio (LTV) of 71% and gearing of 162% as at FYE10. On the other hand, the interest cover (Fitch-adjusted EBITDA interest cover ratio) improved in FYE10 to 3.6x from 2.5x at end-2009 due to delivery of new projects and it is expected to average out to around 2.5x for the coming three years. Additionally, Fitch notes that the projected financials illustrate a deleveraging profile (assuming no new projects mandated and financed by additional debt), as LTV is projected to decrease to approximately 50% and gearing to 80% by 2015.
In January 2011, Alaqaria was able to refinance all its QAR facilities, amounting to QAR1.8bn with a USD five-year bullet, due February 2016, which improved its debt maturity profile. The only significant upcoming maturity until 2015 is a USD300m sukuk due in 2012. This risk should be mitigated by Alaqaria's continued access to local bank financing.