Fitch Ratings has upgraded Jebel Ali Free Zone FZEs (JAFZ) long-term issuer default rating (IDR) to BBB from BBB- with a stable outlook. Fitch has also upgraded JAFZ Sukuk (2019) Limited’s senior unsecured rating to BBB from BBB-.
The rating agency said yesterday that the upgrade and alignment of JAFZ’s rating is driven by the upgrade of its parent DP World (BBB/Stable/F2), reflecting Fitch’s assessment of continuing strong links between JAFZ and its owner under its parent and subsidiary rating methodology.
Fitch has also re-assigned its senior secured rating on JAFZ Sukuk (2019) Limited to a senior unsecured rating, reflecting the release of the Sukuk security as necessary conditions under the Sukuk documentation were met. The approach to rating the Sukuk has not changed.
“The strong parent company ties are the primary rating driver for JAFZ and accordingly the ratings are aligned,”Fitch said. “Under Fitch’s parent and subsidiary rating linkage methodology, we assess JAFZ as having strong legal, operational and strategic links with its parent following its acquisition in 2015. The strong links reflect the presence of cross-default clauses, centralised treasury, common management and jurisdictions and strategic importance.”
JAFZ and its activities account for around 20 per cent of Dubai’s GDP. JAFZ is also of strategic importance geographically, providing the link from the Jebel Ali port to Al Maktoum International Airport, and operationally, with full foreign ownership, tax exemptions and a customs-free area. The zone is situated alongside the site for the 2020 Expo, which is likely to generate benefits for both JAFZ and its parent company when preparations and development get underway.
“Following the repayment of JAFZ’s bank borrowings, the group’s leverage and coverage metrics have significantly improved,” Fitch said. “We expect them to remain strong over the rating horizon. The improvement in the capital structure together with the expectation of solid revenue growth and stable profitability margins indicates a strengthened standalone profile for JAFZ. However, the standalone profile for JAFZ remains constrained by its property ownership structure, whereby JAFZ was granted a usufruct right and concession by the Jebel Ali Free Zone Authority. This differs to other property investment companies which own their real estate and are able to utilise these assets in reducing leverage if required.”
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