The rating is underpinned by the Company’s generally sound overall financial, track record of profitability and the positive impact of the bond – which should significantly improve the Company’s debt profile, as well as securing the funds required to meet the repayment of an existing bond later this year. The Outlook for the rating is ‘Positive’ in anticipation of a much improved debt profile, together with a possible reduction of debt and the good growth prospect of rental income.
The Company reported the third consecutive year of improved earnings in 2012, aided by a substantial asset sale. A repeat of this performance this year will, however, be challenging – despite a number of planned asset sales. Whilst the Company is generally in a sound financial position, the high level of debt in relation to earnings is an area of potential weakness, as is the sizeable amount of short-term revolving facilities. The latter is partly due to the lower pricing of short-term borrowings rather than long-term debt. Total debt has been steadily increasing over the past few years, as has leverage – although it remains satisfactory and compares well to some of its peers at end 2012.
As a real estate development company, URC’s liquidity remains tight, although its portfolio of unencumbered high-end developed properties with decent occupancy rates could provide a source of liquidity if needed. Rental income contributions from these properties are the Company’s main source of income and cash flow.
Rental income growth prospects are fairly good, with the newly opened KIPCO Tower and the forthcoming Salalah Gardens Mall in Oman. While the anticipated improvement of rental income could ease the strain of the large debt burden and operating costs, debt serviceability is likely to remain reliant on the Company’s ability to renew its relatively large amount of short-term facilities – and the repayment of larger facilities, such as the bond, is likely to remain dependent on refinancing and/or asset sales. That said, a fairly large proportion of the Company’s short-term facilities are from related parties.
URC has recently announced a net profit of $7m (equivalent of KWD2m) for the first three months of 2013 and consolidated assets reached $2.0bn (equivalent of KWD556.6m).
Going forward, management is focus on debt reduction while meeting the funding requirements for on-going projects. Some deleveraging is forecast and the successful implementation of these sales plans to reduce debt would serve to further strengthen the Company’s financial profile and could put upward pressure on the rating.
URC was established in 1973 and its shares are listed on the Kuwait Stock Exchange. The Company remains one of the larger players in the real estate sector in Kuwait and the wider MENA region. URC is an indirectly-held subsidiary of the KIPCO Group. At end 2012, KIPCO Group remained one of the biggest diversified holding companies in the Middle East and North Africa, with consolidated assets of KWD7.2bn. The Group has significant ownership interests in a portfolio of over 70 companies, operating across 26 countries. At end 2012 the Group reported a net profit of KWD31.3m, which is an increase of 4.2% over 2011.
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