DIFC Investments May Be Cut at S&P on Sukuk Refinance Risk

DIFC Investments LLC, which owns properties in Dubai’s tax-free financial center, may have its credit rating cut at Standard & Poor’s due to “heightened refinancing risk” on its $1.25 billion Islamic bond due in June.

DIFC Investments “has little room for delays in its efforts to secure a bank loan and government support to refinance the sukuk,” the rating agency said in a statement. The B+ long-term and B short-term ratings were placed on creditwatch with negative outlook.

DIFC Investments started talks with banks for a loan to help pay the bond, two bankers with knowledge of the plan said in March. The company plans to raise $900 million to $1 billion from a five-year syndicated loan and will make up the rest with its own cash, said the bankers, who declined to be identified because the information is private.

Dubai government-controlled DIFC Investments owns and operates office buildings in the Dubai International Financial Centre, which is home to the regional offices of banks including Standard Chartered Plc. The company reported a loss of $274.7 million in 2010 as it wrote down the value of its properties after prices slumped in Dubai.

Yields Decline

DIFC Investments sold the floating rate sukuk in 2007. The company had planned to raise $1 billion from asset sales by the end of last year to help pay debt. S&P estimated the company’s total debt at about $2.4 billion at the end of last year.

“It is likely that the government will support the company to ensure it meets its debt obligations on time and in full,” S&P said. “This support, in our opinion, will be necessary for DIFCI to be able to meet its debt maturities due in 2012.”

The yield on the floating rate sukuk due June 13 was down 49 basis points at 12.66 percent at 11:55 a.m. in Dubai. It has dropped 314 basis points, or 3.14 percentage points, so far this year, compared with a 102 basis point decline in the HSBC/NASDAQ Dubai Corporate US Dollar Sukuk Index.

Dubai’s government won’t use proceeds from the sale of an Islamic bond to refinance the debt of DIFC Investments and Jebel Ali Free Zone, Mohammed Al Shaibani, director general of the Dubai ruler’s court, said yesterday. “DIFC and Jafza are separate entities and they will handle that.”

To contact the editor responsible for this story: Shaji Mathew at shajimathew@bloomberg.net

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