Moody's cuts ratings of Alaqaria; outlook is stable

05/03/2011 00:00 AST

Global credit rating agency Moody's has downgraded the local and foreign currency long-term issuer ratings for Qatar Real Estate Investment Company or Alaqaria (which is now merged with Barwa Group) to 'Baa2' from 'Baa1'.

The agency also downgraded the rating for the $300mn Trust Certificates due 2012 (sukuk) issued by Qatar Alaqaria Sukuk Company, but has stamped a "stable" outlook on the company.

The ratings downgrade follows Moody's reassessment of the company's standalone credit fundamentals, as indicated by its baseline credit assessment (BCA), which considered the more complex ownership structure following the closure of the transaction with Barwa.

It also considered the financial metrics which more commensurate with 'Ba' characteristics for property investment companies after taking into account an expectation that Alaqaria's development pipeline will again begin to expand in the future, especially for the second phase of the Mesaieed housing project.

The BCA nevertheless also factored in the high quality nature of its cash inflows resulting from the long-term contractual rental income from very solid off-takers such as Qatar Petroleum, its quasi-monopolistic position for residential housing in key industrial developments as well as the track record the company has established over time.

Although the government's stake in Alaqaria has increased from 27% to 45% (or 60% if additional stakes of other government-related entities are taken into account), the stake is now held through Barwa Real Estate Company, which acquired 100% of Alaqaria in May 2010. In Moody's opinion a weaker entity given the highly levered financial profile in addition to the extraordinary support Barwa continues to rely upon from its main shareholder, Qatari Diar.

"The current ownership structure therefore moves Alaqaria further away from the government as a support provider by introducing complexity in the ownership structure", according to Martin Kohlhase, Moody's assistant vice president.

Moody's recognises that this is mitigated to some extent by the fact that Barwa does not control the board and the representation that Alaqaria will continue to operate as an independent company. "There is technically the risk that Alaqaria's cash flows could be upstreamed to Barwa in the future," he said.

Gulf Times