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Tue 9 Jan 2007 12:36 PM

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Dubai Holding arm is in 'A1' shape

Moody's has assigned an upper-medium rating to Dubai Holding Commercial Operations Group.

Dubai Holding Commercial Operations Group (DHCOG), the non-financial investment arm of Dubai Holding, has been assigned an upper-medium 'A1' rating by Moody's Investors Service.

Moody's, which performs financial research and analysis on commercial and government entities, has not rated DHCOG before.

DHCOG incorporates all the non-financial investment businesses of Dubai Holding, which is 100% directly owned by Sheikh Mohammed bin Rashid Al Maktoum, Ruler of Dubai. It operates through five wholly owned subsidiaries: Jumeirah, Dubai Properties, Tecom, Tatweer and Sama Dubai.

The government ownership of the group was said to benefit the financial strength of the company. "High implicit government support is […] an important factor in the group's ratings", said Philipp Lotter, a Senior Credit Officer at Moody's and lead analyst for Dubai Holding.

Beneficial factors to the rating include the groups ‘fairly stable and recurring rental revenues' from Dubai's free zones, and the group's ‘strong' hospitality brand, Jumeirah.

The rating decision was also supported by the fact that UAE Government-owned property companies obtain free land grants and so are able to fund a substantial part of their large-scale developments from land sales and pre-payments.

However, despite this ‘institutional support’ in land-sale earnings and Dubai’s booming property market, Moody’s said that ‘the overall proportion from this business [is] expected to decline as developments complete’.

The Moody’s statement also said that ‘ratings are constrained by the cyclical nature of the property industry, and the group's high exposure to a single economy, as well as its ambitious expansion strategy. This includes a number of large-scale projects, including Dubailand and Al Bawadi, a massive tourism complex which will contain the largest hotel in the world.’

‘Moody's states that DHCOG's rating outlook is stable, reflecting the rating agency's view that, despite rising investments, the group will maintain a strong financial profile, given its ability to fund most of its domestic projects from land sales and pre-payments.’

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