Dubai Investments PJSC (DIC), whose profit jumped 240 percent in the second quarter after it sold assets, says it may be on the cusp of its first ever investment-grade rating as it bolsters cash holdings.
The company expects the credit rating to be increased by year-end to at least BBB, two steps above junk, according to Chief Executive Officer Khalid bin Kalban. Its Dubai Investments Park Development Co. LLC unit, which raised $300 million from an Islamic bond in February, holds a BB+ grade at Standard & Poor’s. Dubai Investments sold a 66 percent stake in Globalpharma Co. LLC, which was valued at 385 million dirhams ($105 million), to Sanofi in June.
“We’re flush with liquidity thanks to the sukuk and the Sanofi (SAN) deal,” bin Kalban said by telephone from Dubai yesterday. “By year-end we are looking at an improvement to our rating.”
Shaking off junk status would help Dubai Investments attract investors whose rules prevent them from holding non-investment grade debt, as it seeks to reduce its borrowing costs and fund acquisitions. Dubai, the second-largest member of the United Arab Emirates, has earmarked more than $8 billion to develop roads, rail lines, a new airport and an exhibition center in preparation for the Expo 2020 global trade fair.
The investment park unit sold the only dollar-denominated Islamic bond from the six nation Gulf Cooperation Council in the first quarter of the year, in a debut issue due 2019 that paid a 4.291 percent profit rate. The current rating from S&P, one level below investment grade, applies only to the division that issued the bond. Kalban said he wants any new grading to apply to the whole group.
Dubai Investments’ second-quarter profit soared to 540.5 million dirhams from 158.5 million dirhams a year earlier after it sold its controlling interest in Globalpharma. The yield on the Shariah-compliant bonds from its subsidiary climbed three basis points in the period to 4.21 percent. That compares with an 18 basis-point drop to 4.17 percent for Middle East sukuk on average, according to JPMorgan Chase & Co. indexes.
S&P let Dubai Investments know what was required for an upgrade, and Kalban said they’re preparing to advise the rating company that the conditions have been met. Dubai Investments was upgraded one level on June 23, S&P said at the time.
“Improved liquidity at the parent company was the main factor for the recent upgrade,” Dubai-based Karim Nassif, associate director of Infrastructure Finance at S&P, said by e-mail yesterday. “The outlook is stable, which means we currently don’t expect changes in the ratings over the next 12 to 24 months time horizon.”
Any upside to the ratings would be contingent on the Dubai Investment consolidated group significantly outperforming base case assumptions, Nassif said.
An improved rating may not lead to another sukuk issue from the company, Kalban said.
“We have untapped limits from various Islamic banks, and those have not been drawn or are only partially drawn,” he said. “We’re borrowing cheaper, and with a rating upgrade that would fall even further. Sukuk is perhaps now our second option.”
The company is in advanced talks for two acquisitions that it hopes to conclude this year, Kalban said, declining to name the targets. The investments may total about $100 million and “if we get a good deal we would borrow money by whatever means,” he said.
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