Moody's Investors Service has today downgraded Tamweel PJSC's long-term issuer rating to Baa1 from A3, following the adjustment of its Baseline Credit Assessment (BCA) to 14 from 12. Tamweel's Prime-2 short-term issuer rating is unchanged. The ratings remain on review with direction uncertain. The rating on Tamweel's senior unsecured debt -- namely its AED1.1 billion Sukuk trust certificates due 2013 -- was also downgraded to Baa1 from A3, and remains on review with direction uncertain. Tamweel is one of Dubai's leading mortgage lenders, and reported total assets of AED11.9 billion ($3.2 billion) on March 31, 2009. On Nov. 27, 2008, Moody's placed all of Tamweel's ratings on review with direction uncertain following an announcement that Tamweel and its direct Dubai-based competitor Amlak Finance (not rated) would be merged under Real Estate Bank (REB), an institution fully owned by the Ministry of Finance of the United Arab Emirates (UAE) Federation. Moody's understands that REB is itself also expected to be merged with Emirates Industrial Bank to form a larger combined entity to be named Emirates Development Bank. Following the establishment of a Steering Committee at the Federal level to tackle the situation of both Tamweel and Amlak, further other options have been explored, and the plan of having only Tamweel and Amlak merged is now but one possible route to support them amid local, regional and global credit and liquidity turmoil. The BCA adjustment to 14 from 12 and, subsequently, the issuer rating downgrade to Baa1 from A3, are driven by the following factors: - the deterioration of Tamweel's standalone financial profile in the wake of materially higher funding costs, heightened provision charges and frozen asset growth, with very limited capacity to absorb increasing charges with higher volumes; - high dependence on concentrated wholesale bank funding amplifying liquidity risks, and forcing indirect government support; - a very slow merger and support process from the authorities, with delays placing Tamweel in a difficult operating position, which in turn contributes to a weakening of its franchise value; and - an incremental deterioration in asset quality, which is expected to worsen in the next few months, in the wake of an expected increase in job losses and lower values of off-plan properties -- primarily in Dubai. Given the current uncertainties as regards the timetable, nature, conditions and implementation of the expected support plan(s), Tamweel's Baa1/Prime-2 ratings remain under review, and the direction attached to Moody's review of these ratings stays uncertain. In line with Moody's methodology for government-related issuers, its key rating inputs for Tamweel are: (i) its Baseline Credit Assessment (BCA), which is currently 14 (on a scale of 1 to 21, where 1 represents the lowest credit risk); (ii) the UAE federal government's Aa2 rating; (iii) high dependence; and (iv) high support from the Federation.
