Fitch downgrades Dubai's Emirates REIT after sukuk exchange offer

DUBAI, May 25 (Reuters) - Ratings agency Fitch downgraded Emirates REIT, a Dubai-listed sharia-compliant real estate investment trust, by several notches after the company proposed to exchange its sukuk, or Islamic bonds, for new instruments.

Fitch on Monday cut its rating to ‘C’ - the last rating before a borrower defaults on its debt - from ‘B+’, saying it viewed the proposed debt exchange as a “material reduction in terms for lenders”.

Emirates REIT last week offered to exchange its outstanding $400 million unsecured sukuk for new secured ones to bolster its balance sheet, hit by the coronavirus crisis last year.

Some bondholders have hired advisors including Rothschild to oppose the terms of the offer and engage in negotiations with the company to obtain better terms.

The Dubai company, whose profits are derived from real estate assets it manages, is offering to issue new secured bonds due in 2024, two years longer than the bonds’ current maturity.

While the existing sukuk’s profit rate would be maintained, first year distributions would be delayed under the proposal.

Fitch said that should the proposed exchange go through, it will re-rate the company based on its new capital structure.

It also estimated the company should have sufficient liquidity to meet a June sukuk distribution of $10.2 million in case bondholders vote against the exchange.

Emirates REIT, in response to the Fitch ratings action, said in a statement that it has so far received positive feedback from institutional sukuk holders and that it believes they will vote in support of the offer.

Reporting by Hadeel Al Sayegh and Davide Barbuscia; Editing by Kim Coghill