DUBAI, (Reuters) – Ratings agency Moody’s downgraded five Dubai state-linked entities including port operator DP World DPW.DI, citing concern over their access to government financial support.
They also included Dubai Electricity & Water Authority (DEWA), DIFC Investments, Jebel Ali Free Zone (JAFZ) and Dubai Holding Commercial Operations Group (DHCOG).
“The government has reiterated that GRIs (government-related issuers) debt obligations … are not regarded as obligations of the government … and that the government is under no obligation to extend support to any such GRI,” Moody’s said in a statement on Wednesday.
The government has also tightened criteria to the recently established Dubai Financial Support Fund.
Moody’s said among these criteria are whether the GRIs are able to demonstrate sustainable business plans, the continuing support of their existing financial creditors and whether they have realistic prospects of fulfilling repayment obligations. Dubai, one of seven members of the United Arab Emirates federation, kickstarted a $20 billion bond programme in February when it raised $10 billion from the UAE central bank, a move that calmed worries the former Gulf boom town could default on billions of dollars in debt due for refinancing this year.
Moody’s said it assumes that the second $10 billion tranche will be funded imminently to further prop up the gradually depleting fund.
Ratings of DP World, DEWA, and DIFCI were downgraded to A3 from A1. DHCOG and JAFZ were downgraded to Baa1 from A3.
Moody’s said it maintained Emaar Properties’ ratings at Baa1, on review for downgrade, pending the completion of its assessment of the impact of the proposed merger of Emaar with DHCOG’s real estate operations.
The ratings agency said the ratings remained investment grade and are substantially above those that would be based on the entities’ stand-alone credit quality.
Investors are keen to see how Dubai is able to tap markets as its real estate sector slumps under the weight of the financial crisis.
The emirate and its state-linked firms have outstanding debt of about $80 billion, much of it incurred during a drive in which Dubai expanded activities in logistics, financial services, property and luxury retail and tourism.