Riyadh-Mubasher: Moody's, the global rating agency, has downgraded the corporate family rating (CFR) of Dar Al Arkan Real Estate Development Co. to ‘B1’ from ‘Ba3’, and the company's probability of default rating (PDR) to ‘B1-PD’ from ‘Ba3-PD’, with negative outlook.
"The rating downgrade and negative outlook reflects our view of the interlinkages between the weakening operating and macroeconomic environment that could continue to negatively impact Dar Al Arkan,” said Rehan Akbar, Moody's assistant vice president.
He added that this follows the firm's weaker-than-anticipated financial performance in 2015, believing that market conditions will remain challenging over the coming 12 to 18 months.
"In our view, Dar Al Arkan will be able to adequately address its SAR 1.5 billion of debt maturities due in 2016 primarily through internal cash sources. The B1 rating also assumes that management will continue to pursue financial policies that build up cash buffers ahead of its SAR 3.9 billion in debt maturing in 2018 and 2019," Akbar said.
The rating action is in response to a combination of factors including the uncertain economic outlook for Saudi Arabia and DAAR's weakening credit profile.
Moody's forecasts that Saudi Arabia's real GDP growth rate will fall to 1.5% in 2016 from an expected 3.4% in 2015.
The Saudi government’s recent fiscal consolidation measures including budget cuts and the reduction of energy subsidies, combined with geopolitical tensions, is likely to further weigh on investor sentiment in 2016.
In addition, lower deposit growth in Saudi Arabia's banking system risks tightening liquidity, which could lead to an increase in borrowing costs for DAAR over time.
DAAR's revenue in 2015 of SAR2.2 billion was materially weaker than Moody's anticipated, falling about 28% relative to SAR 3.1 billion of revenue generated in 2014 and as a result, credit metrics have weakened.
