DOHA: Fitch Ratings has affirmed Qatar Real Estate Investment Company’s (Alaqaria) Long-term Issuer Default Rating (IDR) and senior unsecured rating at ‘BBB+’, and Short-term IDR at ‘F2’. The Outlook on the Long-term IDR is Stable.
Alaqaria is a leading Qatari Private Joint Shareholding Company (PJSC) with a mission to identify and invest in long-term projects.
The ratings reflect Alaqaria’s strong business model, robust lessor profile and above-average lease duration for the region. Finance leases provide stable, long-term rental income, which are underpinned by off-take arrangements with Qatar Petroleum (QP) and government-related entities (typically 10-15 years’ duration), and operational lease agreements of between five and 25 years with QP-related companies.
The ratings also reflect Alaqaria’s low counterparty risk, as most of its projected income is due to come from strong credits, plus the benefits of a guaranteed rate of return on its contracts with QP or QP-related entities. These arrangements have provided Alaqaria with sound defensive qualities during the region’s property downturn. Fitch notes that the majority of income is generated from QP, the government-owned national oil company, which benefits from a predetermined internal rate of return. Around 85 percent of Alaqaria’s rental and lease income in 2012 was derived from QP, the government, and QP-related companies.
Under Fitch’s parent and subsidiary methodology, Alaqaria’s ‘BBB+’ rating benefits from a two-notch uplift from its standalone rating of ‘BBB-’. This reflects the company’s strategic and operational relationship with state-related entities as a leading developer of long-term rental housing projects for both the state and corporate sectors in Qatar. Any change in government-implied support, or government ownership of Alaqaria could also have negative rating implications.
Alaqaria’s financial profile has been improving for the past two to three years, mainly due to increased cash generation. But the ratings could be downgraded if there is a loss of preferential status with the state or with QP, EBITDA margins are sustainably below 80 percent, a downturn which leads to significantly lower net interest cover or a substantial increase in leverage; or credit deterioration at the sovereign or QP.
The ratings could be upgraded if the company received formal support from the State of Qatar.
In August 2012 Alaqaria’s $300m Sukuk bonds were redeemed on the back of the company’s improved liquidity and obtaining a related party loan. The Peninsula
