OREANDA-NEWS. Fitch Ratings has revised Jebel Ali Free Zone FZE's (JAFZ) Outlook to Positive from Stable and affirmed its Long-term Issuer Default Rating (IDR) at 'BBB-'. Fitch has also affirmed JAFZ Sukuk (2019) Limited's senior secured rating at 'BBB-'.

The revision of the Outlook follows the rating action on DP World Limited (DP World; see 'Fitch Revises DP World's Outlook to Positive; Affirms 'BBB-' dated 16 November 2015 on www.fitchratings.com). In line with Fitch's "Parent and Subsidiary Rating Linkage" methodology, JAFZ's ratings are aligned with DP World's (BBB-/Positive/F3), reflecting Fitch's assessment of strong links between JAFZ and its parent.

KEY RATING DRIVERS
Strong Links With Parent
Under Fitch's parent and subsidiary rating linkage methodology, we assess JAFZ as having strong legal, operational and strategic links with its parent DP World following completion of the acquisition in 2015. The assessment includes the presence of cross-default clauses, centralised treasury, common management and jurisdictions and strategic importance. The strong parent company ties are JAFZ's primary rating driver. Any material weakening in DP World's credit profile could lead to Fitch reassessing the alignment of the ratings.

Significance to the Economy
JAFZ remains a key part of Dubai's economy, with the company and activities based in the Free Zone accounting for 20% of Dubai's GDP. JAFZ is also of strategic importance geographically, providing the link from the Jebel Ali port to Al Maktoum International Airport, and operationally, with full foreign ownership, tax exemptions and a customs-free area. The area is also situated alongside the site for the 2020 Expo, which is likely to generate benefits for both JAFZ and its parent company when preparations and development get underway.

Solid FY14 Operational Performance
JAFZ delivered solid results for FY14, with revenue increasing 10% to AED1,688m (FY13: AED1,531m) driven by improved occupancy rates and increased fee income. The company maintained stable EBITDA margins, generating AED1,362m in FY14 (FY13: AED1,234m). While the company has provided good revenue growth and management's attention to cost control has maintained margins, Fitch expects more moderate growth and for profitability margins to decline to historical levels in FY15 and then be maintained over the forecast period.

Limited Geographic Diversification
While JAFZ forms an important of the Dubai economy, the fact that all operations are based in Dubai represents a high concentration risk. JAFZ's business tends to be less volatile than the broader Dubai office market. However, the company's performance is correlated with the general level of activity in Dubai as well as the economic strength and political stability of regional GCC members in particular. Fitch also notes the continuing development and available supply of rental properties in free zones throughout Dubai.

KEY ASSUMPTIONS
- Continuing strong links with the parent
- Revenue growth in mid to high single digit range for the forecast period; driven by steadily increasing lease volumes with occupancy and rental rates impacted by new volumes availability
- Relatively stable EBITDA margins
- Increased forecast capex intensity expectations

RATING SENSITIVITIES
Positive: Future developments that could lead to positive rating action include:
- Positive rating action on DP World would likely result in positive rating action on JAFZ, providing that the strength of the parent-subsidiary linkage does not weaken.

Negative: Future developments that could lead to negative rating action include:
- A decline in support from the parent or negative rating action on DP World would likely result in negative rating action on JAFZ.