Fitch Places Tamweel on Rating Watch Positive; Affirms DIB at 'A'

Tue Apr 2, 2013 9:51am EDT

(The following statement was released by the rating agency) LONDON, April 02 (Fitch) Fitch Ratings has placed UAE-based Tamweel PJSC's (Tamweel) ratings on Rating Watch Positive (RWP). At the same time, Fitch has affirmed Dubai Islamic Bank's (DIB) Long-term Issuer Default Rating (IDR) at 'A' and Viability Rating (VR) at 'bb'. A full list of rating actions is at the end of this rating action commentary. RATING ACTION RATIONALE The placement of Tamweel's IDRs and Support Rating on RWP follows the announcement in Q113 by Tamweel's majority shareholder (DIB - 58.25% stake) of its intention to fully acquire Tamweel in a share swap deal. The bid is based on an offer of 10 new DIB shares for 18 existing Tamweel shares held. The offer has been approved by the UAE regulatory authorities and DIB shareholders, and is now subject to approval of Tamweel's minority shareholders (deadline is 31 March 2013). Fitch will resolve the RWP in the coming weeks, once it has assessed the outcome of the DIB share swap offer. As Tamweel is already fully consolidated in DIB's financial statements, the acquisition will have very little impact on DIB's risk profile, and full ownership should allow better operational integration of Tamweel into its DIB's franchise, in Fitch's view. KEY RATING DRIVERS: IDRs, SUPPORT RATINGS AND SUPPORT RATING FLOOR DIB's Long- and Short-term IDRs, Support Rating and Support Rating Floor reflect Fitch's view that there would be an extremely high probability of support from the UAE authorities, if required. This is based on the bank's high systemic importance as the UAE's largest Islamic bank, the strong history of support for local banks from the UAE authorities and the Dubai government's 30% stake. Tamweel's IDRs and Support Rating are driven by expected support from DIB, which acquired a controlling stake in Tamweel in November 2010. The takeover was arranged by the UAE federal and Dubai authorities to provide support for Tamweel. Fitch also considers that the extremely high probability of support from the UAE authorities for DIB, would extend to Tamweel, if needed. Tamweel now operates exclusively as the group's residential home financing arm. Evidence of strong parent and subsidiary linkages include DIB approving Tamweel's new strategy, providing high level management oversight and being the main source of contingency funding. In addition, DIB has transferred its existing residential freehold mortgage portfolio and originating staff to Tamweel, while Tamweel plans to originate new business through DIB's extensive network and distribution channels. In early 2012, Tamweel (via a special purpose vehicle, Tamweel Funding III Ltd) issued USD300m of five-year fixed rate Sukuk with a DIB guarantee. The issue's 'A' rating is solely driven by DIB's Long-term IDR, reflecting Fitch's view that DIB would stand by its guarantee as set out in the transaction documents. In Fitch's view, Tamweel could not operate without the strong support of its parent and the funding/access to the markets which DIB provides. Fitch has therefore not assigned Tamweel a VR due to its close integration with its parent. KEY RATING DRIVERS: VIABILITY RATING DIB's VR reflects its strong domestic franchise, satisfactory funding and liquidity, and stable profitability. It also considers DIB's weak asset quality, high exposure to real estate, high loan concentrations, and, in this context, its relatively tight capitalisation. RATING SENSITIVITIES: IDRs, SUPPORT RATINGS and SUPPORT RATING FLOOR DIB's ratings would be sensitive to a change in Fitch's view of the ability or willingness of the UAE authorities' to support the bank. Senior unsecured issuance, through DIB Sukuk Company Ltd, has the same Long-term rating as DIB. This has been affirmed and is broadly sensitive to the same considerations. Tamweel's ratings are sensitive to the outcome of the recent acquisition offer by DIB. The full acquisition of Tamweel as well as closer operational integration of Tamweel into DIB's franchise could be positive for its ratings and resolve the RWP. The ratings are also highly sensitive to any changes in Fitch's view of potential support available from the Dubai and UAE federal authorities to DIB. The rating on the guaranteed sukuk issued by Tamweel Funding III Limited is equalised with DIB's Long-term IDR, and is therefore highly sensitive to any rating action on DIB. RATING SENSITIVITIES: VIABILITY RATING Negative pressure on DIB's VR could occur if there was deterioration in the domestic operating environment and in the bank's asset quality, or if there was a continuing decline in capital ratios. Upward movement is unlikely considering the weak asset quality, on-going restructuring of large problem loans, the high loan book concentration and the risks inherent in Dubai's real estate market. The rating actions are as follows: Dubai Islamic Bank: Long-term IDR affirmed at 'A', Outlook Stable Short-term IDR affirmed at 'F1' Viability Rating affirmed at 'bb' Support Rating affirmed at '1' Support Rating Floor affirmed at 'A' DIB Sukuk Company Ltd: Senior unsecured trust certificates affirmed at 'A' Tamweel: Long-term IDR: 'BBB+', placed on RWP Short-term IDR: 'F2', placed on RWP Support Rating: '2', placed on RWP Tamweel Sukuk Limited: Senior unsecured debt: 'BBB+', placed on RWP Tamweel Funding III Limited: Senior unsecured debt: 'BBB+', placed on RWP Guaranteed senior unsecured debt: affirmed at 'A' Contact: Primary Analyst (Tamweel) Shaun Miskell Associate Director +44 20 3530 1504 Fitch Ratings Limited 30 North Colonnade London E14 5GN Primary Analyst (DIB) Redmond Ramsdale Director +44 20 3530 1187 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst (Tamweel) Mahin Dissanayake Director +44 20 3530 1618 Secondary Analyst (DIB) Philip Smith Senior Director +44 20 3530 1091 Committee Chairperson Eric Dupont Senior Director +33 144 29 9131 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria, 'Global Financial Institutions Rating Criteria', dated 15 August 2012, 'Evaluating Corporate Governance', dated 12 December 2012, 'Rating FI Subsidiaries and Holding Companies', dated 10 August 2012, and 'Rating Sukuk', dated 16 August 2012, are available at Applicable Criteria and Related Research Global Financial Institutions Rating Criteria here Evaluating Corporate Governance here Rating FI Subsidiaries and Holding Companies here Rating Sukuk here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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