S&P lowers Damac Real Estate

S&P said it lowered the ratings on Damac Real Estate Development Ltd. to BB- from BB.

The outlook is stable.

The stable outlook reflects Damac's significant amount of presales and collections for key projects in Dubai, which are expected to sustain earnings and cash flow generation over the next two years, albeit at a much lower level than in the past, the agency said.

The agency also said it lowered the rating to BB- from BB on the three sukuk trust certificates issued by Damac through three special purpose vehicles: Alpha Star Holding Ltd., Alpha Star Holding III Ltd. and Alpha Star Holding V Ltd.

The recovery rating remains at 3, indicating 50% to 70% expected default recovery.

S&P also said it lowered the rating due to the weakening of Damac's credit metrics over the next two years as residential prices in Dubai decline.

This situation will lead to a decrease in Damac's presales, operating margins and profitability, the agency said.

As a result, S&P said it now forecasts the company's debt-to-EBITDA at 3.5x to 4x over the next two years, compared with a previous expectation of a debt-to-EBITDA of less than 3x.

The agency also said it now regards Damac's financial risk as significant rather than intermediate. The Dubai residential real estate market is not expected to fare any better in 2019, S&P said.

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