INTERNATIONAL. Standard & Poor's Ratings Services said today that it assigned its 'BB' issue rating to the US$500 million senior unsecured trust certificates to be issued by United Arab Emirates-based property company Emaar Properties PJSC (Emaar; BB/Negative/--) under the Trust Certificates Program launched by Emaar Sukuk Ltd., a special-purpose vehicle incorporated in the Cayman Islands.
At the same time, we assigned a recovery rating of '3' to the trust certificates, indicating our expectation of meaningful (50%-70%) recovery for trust certificate holders in the event of a payment default. We base our recovery prospects on a discrete asset valuation.
The numerical coverage exceeds the range specified; however, we cap the recovery rating at '3' to account both for the unsecured nature of the trust certificates, and for our view that the UAE is a relatively unfavorable jurisdiction for creditors. Partially mitigating these factors are Emaar's high-quality property assets.
We value Emaar using a discrete asset valuation. We assume that Emaar would be liquidated in a potential default scenario, as it owns a considerable asset base, and we believe that this provides the best guide to recovery prospects in a default situation.
In the context of our simulated default scenario, we believe that a default would most likely result from a weakening of the economic environment leading to the company's inability to refinance maturing debt. We assume that a default would occur in 2014, presuming a refinancing of the existing revolving credit facility.
Our valuation assumptions include haircuts to the projected book value of the assets owned by Emaar at various discount levels depending on the type of property and the stage of development. The assets that we consider for valuation are unencumbered domestic assets, since most of the international assets are pledged in favor of Emaar's secured debt facilities.
Our valuation excludes the portion of the investment properties that is pledged in favor of other debt facilities, as well as incomplete development properties where we believe customers may have first rights to the assets in the event of default.