OREANDA-NEWS. Fitch Ratings has affirmed UAE-based Majid Al Futtaim Holding LLC's (MAF) Long-term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB'. The Outlook is Stable. Fitch has also affirmed MAF's Short-term IDR at 'F3'.

MAF Global Securities Limited's global medium-term note (GMTN) programme and MAF Sukuk Ltd have also been affirmed at 'BBB'. Fitch has affirmed MAF Global Securities Limited's hybrid security rating at 'BB+.

MAF continues to benefit from high occupancy levels and resilient rental income. The affirmation reflects the group's delivery of revenue and profitability growth. The Stable Outlook reflects the group's ability to maintain relatively stable credit metrics although this is balanced against the expectation of significant growth and expansion investment over the forecast period.

The ratings reflect a strong balance sheet, supported by a match between average debt maturity and weighted average lease length. Fitch believes the group has strong net interest coverage between 2x and 4x and an adjusted leverage ratio below 40%.

KEY RATING DRIVERS
Continued Strong FY14 Performance
2014 witnessed an 11% year-on-year growth in turnover to AED25Bn, resulting in an improvement in EBITDA line of AED3.6bn at the consolidated level. The group's operations generated a satisfactory level of cash from operations of AED3.58bn compared with AED3.2Bn in FY13. The strong performance in 2014 was mainly due to the group's prime assets, active asset management and favourable market conditions in the UAE.

Strong Recurring Rental Income
MAF Properties LLC provides solid profitability growth (from shopping malls and hotels) delivering EBITDA of AED2.4bn to the group's consolidated EBITDA of AED3.6bn; supported by high occupancy rates of 97% and a low tenant default rate. Fitch believes the group's continuous improvements to the flagship assets will continue to provide resilient income. Moreover, the group benefits from a diverse tenant base and a healthy wait list for its flagship shopping malls. The group compares well with its European peers due to its high occupancy rate and relatively extended average lease length of eight years.

MAF Conservative Debt Structure
The overall debt structure mainly constitutes of senior unsecured debt (revolvers, bonds & sukuk) issued mostly at the holding level (AED6.3bn out of AED9.1bn total debt) and cross guaranteed by MAF Properties. Secured debt represented 13% of total debt (down from 46% in FY11) for the purpose of constructing the Mall of Egypt, Fujairah City Centre and Beirut City Centre. The ratio of unencumbered assets cover remains well above 2.0x.

Retail Supporting Diversification
MAF Retail LLC, a wholly owned subsidiary of the group, is one of the most active retailers in the market with exclusive franchise for Carrefour S.A. (BBB+/Stable). In 2014, MAF Retail increased its operations to include Middle East, Africa and East Asia with 128 stores. MAF Retail contributes 82% and 32% of the group's turnover and EBITDA, respectively. Fitch believes the retail segment widens the group's diversification and footprint in the region and has a positive effect on the group as long as rent expenses are not increasing beyond forecasted levels and debt (if any) is kept at low levels.

Moderate Development Risk
Fitch derives comfort from the group's development mechanism where at least 50% of gross leasable area is signed prior to initiating shopping malls construction and 75% of allocated capex is uncommitted. Moreover, the group negotiates project construction contract terms to minimise exit costs.

Limited Geographic Diversification
Geographical and asset concentration is high compared with peers with almost 70% of property assets accounted for by three large shopping malls in Dubai.

Gifted Land
Two large properties have been developed on land gifted to the ultimate sole shareholder of MAF, Majid Al Futtaim. These properties are held in the shareholder's name for the beneficial interest of MAF. Properties that are built on land gifted by the ruler of Dubai cannot currently be sold or finance-leased, separately, without the prior consent of the ruler. This limitation has an impact on the enforceability of these assets under a stress scenario. However, Fitch notes that existing law/rules allow the company to get the titles transferred after payment of applicable fees.

RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Net interest cover sustained above 3.0x and deconsolidated Fitch-adjusted leverage below 40%
- Meaningful geographical diversification and/or reduced asset concentration

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- A significant downturn in the markets in which MAF operates and higher than expected capex, leading to material falls in net interest cover below 1.5x over a sustained period

LIQUIDITY AND DEBT STRUCTURE
The group follows an active treasury management policy which has improved its maturity profile to 5.2 years from an average of 4.7 years in FY13. The group has moderate refinancing risk, mitigated by strong liquidity in the market and strong banking relationships, evidenced by the early refinancing of maturities in 2015.

KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for MAF include:
- Occupancy levels to remain solid in malls and hotels
- Moderate growth in rental income
- Strong performance in major assets of the holding