Secures 'BB-' issuer credit rating from S&P Global Ratings with positive outlook and 'Ba3' from Moody's with stable outlook
PNC Investments LLC (Sobha Realty), a renowned residential developer in Dubai, received a 'BB-' issuer credit rating by S&P Global Ratings with a positive outlook, along with a ‘Ba3’ rating by Moody’s with a stable outlook. This dual credit rating demonstrates the rating agencies' confidence in Sobha Realty's solid financial performance and potential for future growth.
Thanks to the high demand of residential properties in Dubai, Sobha Realty has experienced considerable success in the residential real estate market. In 2022, it achieved pre-sales of AED 10.8 billion and AED 6.2 billion as of May 2023.
According to the report from S&P, the company's financial performance improved significantly with EBITDA expanding by 83 per cent to AED 1.3 billion in 2022 and operating cash flow generation increasing further, fuelled by working capital inflows from strong receivable collection. The report also states that the positive outlook for Sobha Realty could be upgraded over the next 12 months if the demand for residential real estate in Dubai remains strong and profits are further improved, enabling the company to maintain the EBITDA interest coverage above 8x, while adjusting debt to EBITDA at a 1.5x-2.0x range.
One of the primary contributors to Sobha Realty's operational success has been its vertically integrated business model, which includes in-house design, architecture, engineering, construction, and material sourcing. The model's capacity to facilitate smooth project execution and delivery has significantly increased customer satisfaction and brand loyalty for the company. Additionally, Sobha Realty's revenue backlog of AED 8.6 billion as of March 31, 2023, provides further revenue visibility, and the stabilising demand is expected to support steady revenue and profit generation in 2023-2024.
The report from Moody's indicated that the agency's scorecard reported a ‘Ba1’ outcome for the company. However, it was assigned a ‘Ba3’ rating due to its short track record, as well as the cyclical nature of the Dubai housing market. The report also suggests that the Dubai residential real estate market has been performing well since the start of 2021 and will continue to do so through 2023. This represents a turnaround after prices fell by a total of 33 per cent between the end of 2014 and the end of 2020.
