Property

DHCOG debt instruments downgraded by Moody's

In the wake of Dubai Holdings Commercial Operations Group reaching agreement to restructure a $555 million revolving credit facility Moody's Investor Services, the ratings agency, has downgraded $2.14 billion of debt instruments issued by the company.

Frank Kane

January 04, 2011

Moody's Investors Services, the ratings agency, has downgraded US$2.14 billion (Dh7.86bn) of debt instruments issued by Dubai Holding Commercial Operations Group (DHCOG).

DHCOG, which has property, hotel and free zone businesses in the emirate, is part of Dubai Holdings, the conglomerate owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai. It includes the Dubai Property development business, as well as Jumeirah hotel and leisure operations and TECOM business parks.

The downgrade affects DHCOG's medium-term note (MTN) facility, with the rating reduced from "B2" to "B3". Moody's probability of default rating (PDR) is left unchanged at "B3", but the agency is maintaining its review for possible downgrade of the PDR, as well as the overall corporate family rating (CFR) and further downgrade of the MTN. Last week, DHCOG announced it had reached agreement with its principal bankers to restructure a $555 million revolving credit facility, which will now be repayable over a five-year period on commercial terms.

"Despite the limited information so far regarding the new terms, Moody's believes the banks may now be in a preferential position vis-à-vis bondholders. We have reflected this by downgrading the debt instruments ratings to 'B3'," said Martin Kohlhase, Moody's assistant vice president analyst in the Middle East.

He added that the decision to continue the PDR at "B3" "indicated the continued high default risk until the capital market debt is refinanced over the next 14 months. DHCOG has to repay $240m in July and a further $500m in February next year.

"We normally do not respond to actions by the ratings agencies," said a spokeswoman for DHCOG. However, a source close to the company said Moody's had "rushed into a decision" on the downgrade, and should have waited for more information.

"The bondholders' situation has changed since last week, when the $555m deal was announced. They are in a weaker position. We had to act on that information," said Mr Kohlhase.

Moody's ratings review of DHCOG will conclude by the end of this month. "We will continue to hold discussions with DHCOG's management about the company's outlook, the business plan and the refinancing risks," the agency said.

"While some recent macro-economic and trade data represent evidence of a recovery in DHCOG's core recurring business activities, the Dubai property market remains hampered by over-capacities, where DHCOG plays a dominant role as one of the largest master developers."

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Hydrogen: Market potential

Hydrogen has an estimated $11 trillion market potential, according to Bank of America Securities and is expected to generate $2.5tn in direct revenues and $11tn of indirect infrastructure by 2050 as its production increases six-fold.

"We believe we are reaching the point of harnessing the element that comprises 90 per cent of the universe, effectively and economically,” the bank said in a recent report.

Falling costs of renewable energy and electrolysers used in green hydrogen production is one of the main catalysts for the increasingly bullish sentiment over the element.

The cost of electrolysers used in green hydrogen production has halved over the last five years and will fall to 60 to 90 per cent by the end of the decade, acceding to Haim Israel, equity strategist at Merrill Lynch. A global focus on decarbonisation and sustainability is also a big driver in its development.

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2016 - Lewis Hamilton (Mercedes)

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Install an air filter in your home.

Close your windows and turn on the AC.

Shower or bath after being outside.

Wear a face mask.

Stay indoors when conditions are particularly poor.

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It challenges school pupils to design experiments to be conducted in space and it aims to encourage future talent for the UAE’s fledgling space industry. It is the first of its kind in the UAE and, as well as encouraging talent, it also aims to raise interest and awareness among the general population about space exploration. 

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