By Andy Sambidge
Rating agency upgrades JAFZ's rating after completion of sukuk and bank refinancing
Fitch Ratings said on Friday it has upgraded Jebel Ali Free Zone's (JAFZ) long-term issuer default rating (IDR) to 'B+' from 'B', adding that its outlook is stable.
The rating agency said the upgrade reflects the successful completion of the sukuk offering and bank refinancing, which addresses the refinancing maturity of a sukuk due in November 2012.
It added that the rating reflected the fact that JAFZ-based company activities are one of the significant contributors to Dubai's economy, currently accounting for approximately 21.1 percent of Dubai's GDP.
Bashar Al Natoor, director in Fitch's EMEA Corporates team in Dubai, said: "JAFZ maintains a diverse portfolio of land tenants in terms of industry sector and geographic base segments.
"Its top 10 customers represented around 10.4% of total leasing revenue and the top customer represented less than three percent of the leasing revenue as of December 31 2011.
"However all of JAFZ's operations are based in Dubai which entails a high concentration risk," Al Natoor added.
Fitch said JAFZ's rentals and revenues from administration of real estate have held up relatively well in the past three years despite Dubai's challenging real estate market conditions.
JAFZ has also maintained satisfactory occupancy rates. Almost 79 percent of leasable land, 90 percent of warehouses, 78 percent of offices and 88 percent of onsite residential accommodation (OSR) were occupied as of the end of 2011.
Although Fitch said that JAFZ's business tends to be less volatile and sensitive to asset bubbles than the broader Dubai office market, it added that JAFZ's performance was correlated to the general level of activity in Dubai.
It added that it is concerned "by the large and increasing supply of rental properties in the free zone sector".
The rating agency said JAFZ must generate free cash flow to repay debt, as it does not own its real estate assets, but was granted a usufruct right and concession by the Jebel Ali Free Zone Authority which matures in 2106.