Moodys Assigns Provisional (P)Ba1 To Ezdans Sukuk Programme

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1. Rating Action : Moody's assigns provisional (P)Ba1 to Ezdan's Sukuk Programme Global Credit Research - 04 May 2016 London, 04 May 2016 -- Moody's Investors Service, ("Moody's") has today assigned a provisional (P)Ba1 senior unsecured MTN rating to the USD2.0 billion Trust Certificate Issuance Programme (the "Programme") of Ezdan Sukuk Company Limited (the "Issuer"), a special purpose vehicle established in the Cayman Islands by Ezdan Holding Group Q.S.C ("Ezdan"). RATINGS RATIONALE The (P)Ba1 rating assigned to the Programme is at the same level as the Corporate Family Rating (CFR) of Ezdan (Ba1 stable), as the holders (the "Certificateholders") of the trust certificates issued under the Programme (the "Certificates") will (i) effectively be exposed to Ezdan's senior credit risk; (ii) not be exposed to the risk of performance of the portfolio assets relating to the Certificates; (iii) will not have any preferential claim or recourse over the relevant Trust Assets, or rights to cause any sale or disposition of such Trust Assets except as expressly provided under the Transaction Documents for the Programme; and (iv) only have rights against Ezdan, ranking pari passu with other senior unsecured obligations as provided in the Transaction Documents. The alignment of the instrument rating with the CFR at Ba1 also reflects the lower proportion of secured debt to total assets, which was 43% as of year-end 2015, thus presenting excess collateral value. A definitive rating will be assigned to drawdowns on this programme upon Moody's satisfactory review of the final terms and conditions and legal opinions at the time of issuance. Moody's also notes that its sukuk rating does not express an opinion on the Programme's structure's compliance with Shari'ah law, and for this it refers to the decision provided by HSBC and Mashreq bank's respective Shari'ah Supervisory Committees. The proceeds of the Certificates under the Programme will be used by the Issuer to acquire a portfolio of assets comprised of no more than 49 percent in Shari'a-compliant commodities (excluding gold and silver) and no less than 51 percent in wakala assets, mainly real estate assets. The portfolio will be managed by Ezdan as the agent for the provision of Wakala services on behalf of the Issuer (acting as Trustee for the Certificateholders). Ezdan will collect income against the relevant periodic distribution amounts due for each series. If there is a shortfall between the amounts collected and the aggregate periodic distribution amounts due, then Ezdan may pay further amounts to remedy such shortfall to avoid a dissolution event. Similarly, Ezdan is required to purchase from the Issuer the portfolio of assets at a predetermined price at dissolution irrespective of the performance of the underlying assets. Ezdan's Ba1 corporate family rating (CFR) is underpinned by (1) its leadership position in the residential market in Qatar with an investment properties portfolio worth QAR36.9 billion (USD10.1 billion) as of 31 December 2015; (2) recurring income from a property portfolio mainly in the residential sector which is expected to grow over the medium term given macroeconomic fundamentals and shortage of supply in the market; and (3) substantial value in its equity portfolio which has a market value in excess of QAR9.6 billion and provides an additional source of recurring income and cash flows through dividends and acts as an alternative source of liquidity given that more than 90% of the investments in value are listed. The Ba1 rating also reflects (1) a relatively weak financial profile, albeit improving, with net debt to EBITDA decreasing to 8.0x in 2015 from 11.0x in 2013 as well as a high degree of encumbered assets; (2) the uncertainty around financial policies in the context of negative free cash flow expected until 2017; and (3) Ezdan's geographical and asset concentration in Qatar where the company generates all of its revenues. WHAT COULD CHANGE THE RATINGS - UP/DOWN Moody's has aligned the senior unsecured MTN rating with Ezdan's Ba1 CFR. Upgrade pressure on the programme rating would be a result of an upgrade of Ezdan's rating.
2. Moody 's could upgrade the rating of Ezdan if the company establishes a track record of adhering to conservative financial policies and displays a financial profile where net debt to EBITDA remains below 5.0x and interest coverage above 4.0x on a sustainable basis. In addition, upward rating pressure would require positive free cash flow that is more than sufficient to cover upcoming debt maturities. The Rating of the programme could be under downward pressure if (1) Ezdan's CFR were to be downgraded or (2) the ratio of unencumbered assets to total assets were to decrease to below 50%, which could result in notching the programme's rating, positioning it below that of Ezdan's CFR . Downward pressure on the rating could result from a deteriorating operating environment or aggressive debtfunded investments, which could lead to a financial profile moving away from the expected deleveraging path and interest coverage trending below 3.0x. A downgrade could also result from an aggressive shareholder remuneration policy which, in turn could lead to a weakening liquidity position. The principal methodology used in this rating was Global Rating Methodology for REITs and Other Commercial Property Firms published in July 2010. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology. The Local Market analyst for this rating is Julien Haddad, +971 (423) 795-39. Ezdan Holding Group Q.S.C. (Ezdan) is a public company listed on the Qatari stock exchange since February 2008 and is one of Qatar's largest real estate operating companies with a market cap of QAR49,230 billion (USD13.5 billion) as of 26 April 2016. The company has an investment properties portfolio of ca.20,000 leasable residential units, 37,000 sqm of gross leasable area (GLA) in mall space as well as 3,000 hotels keys as of 31 December 2015. Ezdan has also a sizeable equity investment portfolio that is concentrated in listed Qatari entities. As of 31 December 2015, Ezdan was more than 70% owned (directly or indirectly) by its founder Sheikh Thani Bin Abdullah Al Thani and had total assets of QAR47 billion (USD13 billion). REGULATORY DISCLOSURES For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Maria Maslovsky Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service Ltd.
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