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Moody’s Downgrades Tamweel

The ratings agency kept Tamweel’s Prime-2 short-term issuer rating unchanged. “Given the current uncertainties as regards the timetable, nature, conditions and implementation of the expected support plan, Tamweel’s Baa1/Prime-2 ratings remain under review, and the direction attached to Moody’s review of these ratings stays uncertain,” said Moody’s in a statement late Thursday. Moody’s said it downgraded Tamweel’s issuer rating because the firm’s financial standing is weakening from higher funding costs, “heightened provision charges and frozen asset growth, with very limited capacity to absorb increasing charges with higher volumes.” At the same time, Tamweel is highly-dependent on concentrated wholesale bank funding that amplifies liquidity risks, and forces indirect government support.

The snail-paced merger and tentative support by authorities is also putting Tamweel in a difficult operating position, which in turn contributes to a weakening of its franchise value, 
said Moody’s.

Tamweel and another troubled mortgage lender, rival Amlak Finance, are to be merged under Real Estate Bank (REB) which is fully-owned by the Ministry of Finance. REB in turn will also be merged with Emirates Industrial Bank to form a larger combined entity to be named Emirates Development Bank.

State officials have been saying since March that a decision on the final structure of the merged entitities would be made. A steering committee was created by the federal government to review the merger plan.

Since late November, shares in Tamweel and Amlak Finance which are listed at the Dubai Financial Market, have been suspended.

Moody’s said it expected “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.”

Earlier in May, Tamweel posted a net loss of Dh112.3 million in the fourth quarter of 2008 compared to a net profit of Dh207.2 million in the same period of 2007, reflecting the toll of Dubai’s property downturn as housing demand has softened, while credit has become scarcer.

rocel@khaleejtimes.com