DUBAI, (Reuters) – Moody’s Investors Service said on Monday it was considering downgrading its debt ratings of six Dubai companies, including DP World and Emaar Properties, due to the escalating global financial crisis.
The credit rating agency said it could lower its debt and Islamic bond, or sukuk, ratings for the six firms, all linked to the Dubai government, by as much as two notches each following a review in the coming weeks.
Citing a deterioration in the regional macroeconomic outlook, Moody’s said Dubai had been hit harder than other economies in the oil-exporting Gulf region. Oil prices have slumped more than $100 a barrel since a peak last July.
In addition to Emaar and DP World, Moody’s said it was reviewing ratings of DIFC Investments, Dubai Holding Commercial Operations Group, Dubai Electricity and Water Authority and the Jebel Ali Free Zone.
“While Dubai’s economy is more diversified than regional rating peers, it is dependent on cyclical sectors such as real estate, tourism, trade and financial services,” Moody’s said.
“All of these are being adversely affected by the tougher external environment.”
A once-vibrant building boom in Dubai came to an end late last year as the global financial crisis intensified, and Dubai residential real estate prices have since tumbled an average of 25 percent, Morgan Stanley said in a note late last month.
The property downturn and economic slowdown have prompted a slew of job cuts in Dubai, while banks are adopting cautious consumer lending policies on expectations they will have to make provisions for defaults on mortgage and consumer loans.
“Unlike most other governments in the Gulf, notably that of its oil-rich neighbour Abu Dhabi, Dubai’s government is not known to hold substantial offshore liquid assets that can potentially be tapped to finance fiscal deficits,” Moody’s said.
Moody’s current ratings for all of the Dubai companies except Emaar is A1. Its rating for Emaar is A3.
Emaar shares have fallen about 17 percent this year while those of DP World slumped more than 4 percent on Monday to a record low.