DUBAI, (Reuters) – Standard & Poor’s on Monday withdrew its rating on a unit of Dubai Holding, which is owned by the ruler of Dubai, saying the division’s cash position was “materially weaker” than it expected.
The ratings agency cut Dubai Holding Commercial Operations Group (DHCOG) to B from BB+ and said it opted to withdraw it due to a lack of timely information and documents, renewing scrutiny over the financial health of the emirate.
Dubai rocked global markets on Nov. 25 when it asked for a delay in repaying $26 billion in debt linked to its state-owned Dubai World conglomerate and its property units.
Investors had been closely watching Dubai Holding in the wake of Dubai’s bombshell, amid concerns about the group’s debt position.
DHCOG — the holding firm of Dubai Holding’s pbroperty, business parks and hospitality units — is part of an investment vehicle owned by the Gulf Arab emirate’s ruler.
“We understand from the information we have gathered that cash flow generation for Dubai Holding Commercial Operations Group (DHCOG) is likely to be materially weaker than we initially expected, which in our view significantly deteriorates DHCOG’s liquidity position,” S&P analyst Pierre Georges said in a statement.
S&P said the unit could face a difficulty in refinancing and it was doubtful the Dubai government would lend it support.
On Sunday DHCOG said it had made about $100 million worth of scheduled distribution payments on three bonds due over the next five years.
S&P projected the unit would face lower sales and lower selling prices of real estate units, adding that its “exposure to the severe downturn in the Dubai real estate market also constrains its credit quality.”
“We understand that free cash flows are likely to be negative for 2009 and 2010, which we believe will deteriorate DHCOG’s liquidity position and could ultimately weaken its ability to meet its 2010 debt maturities.”