Moody's Investors Service has upgraded Jebel Ali Free Zone FZE's (JAFZ) Corporate Family Rating (CFR) to Ba3 from B1, Probability of Default Rating (PDR) to Ba3-PD, and the rating on the US dollar-denominated trust certificates (Sukuk) issued by JAFZ Sukuk to Ba3.
“JAFZ's baseline credit assessment (BCA) has been raised to b1 from b2. At the same time, the ratings have been placed on review for upgrade,” said Moody’s in a media statement. “The decision to upgrade the rating is supported by JAFZ's improving financial profile while the announcement of Economic Zones World's (EZW) sale of EZW Gazeley Limited (Gazeley) suggests further upward rating pressure.
“The rating upgrade reflects the improvement in JAFZ's financial profile and credit metrics that have surpassed Moody's rating guidance for the B1 rating, with debt/EBTIDA falling below 6.0x and EBITDA/interest expense remaining well above 1.8x as of year-end 2012.
The decision to further place the ratings on review for upgrade reflects Moody's assessment that the Gazeley sale is credit positive for JAFZ and could result in a more conservatively positioned financial profile than the current b1 BCA suggests.
"Should the sale proceeds be of a meaningful amount, the mandatory early payment clause under the Islamic facility would accelerate JAFZ's already deleveraging trend line," says Rehan Akbar, an Analyst in Moody's Corporate Finance Group and analyst for JAFZ.
“Under the provisions of JAFZ's AED 4.4 billion ($1.2 billion) Islamic facility, a guarantee was provided by EZW and linked to the completion of a full or partial disposal of Gazeley, which would give rise to a mandatory prepayment but limited to greater of $300 million or two thirds of net cash proceeds. During the review period, Moody's will assess the transaction's impact on JAFZ's credit profile, particularly in relation to its deleveraging path and strengthening of its debt servicing ability.
“The review process will also focus on the transaction's impact on JAFZ's capital structure, liquidity and debt maturity profile. In addition, Moody's will further assess the implications on structural benefits that creditors have so far benefitted from under the current loan provisions, such as cash lock-ups as well as limitation on financial indebtedness and capital expenditures. Should such restrictions be no longer valid in the near future, management may alter its business plan towards greater growth.
“JAFZ's solid business profile continues to underpin the company's ratings.
Moody's considers the company's business risk to be low with stable leasing revenues and high operating margins providing the company with a reliable recurring cash flow base. EBITDA margins have been consistently in excess of 70 per cent since 2008 while occupancy rates have remained strong across JAFZ's portfolio.
“JAFZ is a government-related issuer as per Moody's definition. JAFZ's final Ba3 rating combines a BCA of b1 and a one-notch uplift stemming from Moody's low assumption of exceptional support.”