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Dubai-based Emirates REIT’s issuer default rating was downgraded to C from B+ by Fitch following the company’s proposed debt exchange offer to sukuk holders. Fitch also downgraded its senior unsecured sukuk securities, issued via Emirates REIT Sukuk Limited, to C from BB-. As per the proposed exchange, Emirates REIT is seeking to exchange its $400mn 5.125% sukuk due 2022 for new ones maturing December 2024 and having first-ranking security over company properties valued at about $280mn. Further, the REIT proposes to defer first year distributions amounting to $10.2mn, which will accrue and be paid at maturity. Creditors are said to have hired Rothschild to facilitate the blocking of this debt exchange. Fitch considers this proposal to constitute a distressed debt exchange (DDE) under its DDE criteria. The rating agency added that should the proposed transaction go through, it will further downgrade Emirates REIT to RD (Restricted Default) and subsequently re-rate it based on the new capital structure and business prospects. If the creditors are successful in blocking the transaction, Fitch will re-rate the company “reflecting its constrained liquidity profile and end-2022 refinance risk.”

Emirates REIT’s sukuk due 2022 traded slightly higher this week to 68 yielding 33.26% currently.

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