Fitch upgrades Tamweel; outlook stable

Fitch Ratings on Tuesday upgraded Tamweel's rating as Dubai Islamic Bank’s stake hike removed uncertainty about its ownership, said a press statement.

Tamweel's Long-term Issuer Default Rating (IDR) was upgraded to 'BBB-' from 'BB', Short-term IDR to 'F3' from 'B', Individual Rating to 'D/E' from 'E' and its Support Rating to '2' from '3'. The Outlook on the Long-term IDR is Stable.

The Support Rating Floor has been withdrawn.

The rating actions resolves the Rating Watch Positive placed on Tamweel's ratings on September 30, 2010 following Dubai Islamic Bank acquiring raised its stake in Tamweel to 58.25 per cent from 20.77 per cent. The company is now a subsidiary of DIB. This transaction has removed the uncertainty over Tamweel's ownership and business model and concluded a Dubai-government led solution for the company.

Tamweel's IDRs are driven by the high probability of support from its majority shareholder DIB. Fitch believes that there is an extremely high probability of support from the UAE authorities for DIB and that this support would also extend to Tamweel, if required, reflecting the degree of integration within DIB.

Tamweel's Individual Rating upgrade reflects its improved funding and liquidity position and closer integration to the bank. Fitch's main concern is a potential negative trend in the company's asset quality as the UAE property segment continues to be weak.

Although, impaired home financing remains low (3.6 per cent of gross financing at end-2010), Fitch believes that the potential for further and possibly material asset quality deterioration remains high, due to Tamweel's high level of financing in negative equity at current prices, combined with its large exposure to off-plan property (where repayments only commence when the property is completed).

Tamweel returned to profitability in 2010 on the back of declining provisions and improved funding costs. Earnings could strengthen further after Tamweel resumed lending in Q1 2011 after a two-year delay. New business originated by the company is highly selective and in Fitch's opinion, does not unduly compromise its risk position given that property prices are about 50 per cent below the peak.

Fitch understands from Tamweel that it will remain a separate business and DIB will provide funding, operational and management assistance.

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