Fitch Rates IRSA's IDR & Proposed US$150MM Senior Notes 'B'.

BUENOS AIRES, Argentina -- Fitch Ratings has assigned foreign and local currency Issuer Default Ratings (IDRs) of 'B' to IRSA Inversiones y Representaciones S.A. (IRSA), a leading real estate company in Argentina. Fitch has also assigned a 'B' rating to IRSA's proposed US$150 million senior unsecured note due in 2017, as well as a Recovery Rating (RR) of 'RR4', which indicates average recovery prospects in the event of default. In conjunction with these rating actions, Fitch has assigned an 'A-(arg)' national rating to the new debt issuance. All ratings have a Stable Outlook.

The ratings are supported by IRSA's strong business position in both residential and office property development and management. As of September 2006, key office assets include 87,000 square meters of 'AAA' and 'A' office buildings strategically located, representing 45% of IRSA's total leasable area. IRSA's credit ratings also positively factor in its 61.5% controlling stake in Alto Palermo (APSA) (65.2% fully diluted), a leading developer and manager of shopping centers in Argentina. APSA operates and owns majority stake in nine shopping centers in Argentina, five of which are located in Buenos Aires. Both IRSA and APSA own key parcels of land in Buenos Aires which could be sold to improve the company's liquidity.

The company's 'B' ratings reflect the cyclical nature of the real estate market in Argentina, which is highly correlated with the local economy, and the lack of geographic diversification of the company's cash flows. IRSA's credit ratings also reflect the mismatch between its dollar denominated debt and peso denominated cash flow. Further factored into the rating is IRSA's reliance upon APSA for dividends for debt service, as well as payments on convertible bonds of APSA held by IRSA. Should APSA grow aggressively in the future via internal cash flow and/or debt, it may not have sufficient free cash flow to upstream to IRSA.

As of Sept. 30, 2006, IRSA had US$94 million of consolidated debt. This debt consists of US$67 million of debt at IRSA and US$27 million of debt at its subsidiaries, primarily APSA. This debt does not include convertible notes for US$27 million and US$47.3 million, in IRSA and APSA, respectively. The company intends to use the proceeds of its $150 million issuance primarily to expand its office business, including the acquisition of the Republica and Nacion buildings. After these transactions Fitch expects IRSA's consolidated debt to increase to approximately US$280 million. IRSA has a call option to acquire the Republica office building for US$74 million. Jointly these acquisitions would represent an EBITDA of around US$12 million per annum, increasing by 76% IRSA's 'AAA' office rental area and raising its market share in this segment above 20%. Fitch expects future investments to be financed with the proceeds of the debt issuance and from the US$60 million of cash that could be raised from the full exercise of the call option on IRSA's stock due in November 2007.

Fitch expects IRSA to maintain adequate leverage after the debt issuance and believes that the convertible notes will be converted to equity in November 2007. On a consolidated basis, including APSA, the company's Loan to Value (LTV) as measured by net debt to undepreciated property assets (or LTV ratio) was 6% at the end of September and would climb to 35% with the addition of the new debt. IRSA's LTV, excluding APSA, was 25% as of Sept. 30, 2006, and will increase to 75% with the proposed US$150 million debt issuance. After the debt issuance most of IRSA's unconsolidated debt will be unsecured, and the unsecured asset coverage, defined as unencumbered property assets to unsecured debt, is estimated at 1.1 times (x). On a consolidated basis, including APSA, this ratio would climb to 3x.

During the last fiscal year, IRSA's consolidated EBITDA was US$86.4 million, 68% of which is related to the shopping center segment. On a standalone basis, cash generation from the office and development segments plus dividend stream from APSA and the hotels plus interest on APSA's convertible notes (or IRSA's adjusted cash flow) was US$29 million as of June 2006. This is composed of US$20 million from the rental office and development segments and US$9 million from APSA. Favorable market conditions and the new office building acquisitions are expected to boost the company's cash generation and will help support its debt service. Under a stressed scenario Fitch estimates IRSA's adjusted cash flow to be above US$37 million per year during the next three years, which is the amount the company needs to cover its annual debt service.

The outlook for IRSA in the short term appears to be positive due to the continued recovery of the economy which will increase the demand for office space and residential development. Its office properties are located in prime business locations in the city of Buenos Aires. Demand for office space has recovered, resulting in low vacancy rates and increasing prices. Fitch expects rental agreements to be renewed at higher prices (approximately 40% increase over the next two years) with a positive impact on IRSA's cash flow. The company's shopping center subsidiary APSA is also benefiting from the continued rebound of the economy. Nevertheless, over the medium to long term, considerable political and economic risks exist in the company's operating environment. A negative rating action could be triggered by a significant underperformance in projected cash generation.

IRSA is a leading real estate company in Argentina. Its business portfolio is split between office rental, real estate and hotel developments and shopping centers. The company's stock is listed on both the Buenos Aires Stock Exchange and the NYSE. Cresud S.A. is the largest shareholder of IRSA, with a 26.7% stake and a fully diluted stake of 34.3%.

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