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Global Credit Research - 06 Dec 2011
Dubai government faces lower contingent liabilities overall; pressure remains on DHCOG,DIFCI, JAFZ
London, 06 December 2011 -- Moody's Investors Service acknowledges the significant progress
made by the government of Dubai and its state-owned non-financial
corporates in tackling maturing debt. However, in view of
the companies' continued medium-term need to refinance debt,
the rating agency is maintaining its conservative support assumptions
for Dubai's rated state-owned corporates, resulting
in limited, if any, ratings uplift from their stand-alone
profiles. Nevertheless, Moody's has taken positive
rating actions over the past year for DP World, DEWA and Emaar on
the back of improvements in their stand-alone profiles.
In the first of two new reports published today, Moody's explains
that Dubai's core profile has evolved since the announcement in
November 2009 of a 'standstill' on the debt of its flagship
conglomerate, Dubai World. With the help of financial assistance
from the Abu Dhabi and UAE governments and its own stabilising economic
fundamentals, Dubai has been able to repay, refinance or restructure
certain debt obligations held by strategically important state-owned
entities. While this has alleviated some of Moody's previous
concerns about the sustainability of Dubai's business model given its
exposure to financial risk, there have so far been few signs of
material voluntary deleveraging and migration to more sustainable capital
structures among corporates with currently weak credit profiles.
This raises concerns about renewed medium-term pressures when the
refinanced obligations become due, and about Dubai potentially needing
further financial support. Moody's continued 'low-to-moderate'
support assumptions for the rated state-owned entities result in
limited ratings uplift for their final ratings relative to their stand-alone
profiles.
Moody's new report notes that the Dubai government's public
disclosures since 2009 reflect a redefinition and narrowing of the scope
of the strategic holdings that Dubai now considers as warranting its support.
The rating agency has consequently assessed Dubai's exposure to
contingent liabilities emanating from state-owned corporates (excluding
the debt of state-owned banks) as amounting to around US$33.7
billion -- significantly below Dubai's state-owned corporate
debt of US$68.6 billion, and excluding US$5.1
billion of government-guaranteed corporate debt. In total,
Moody's has identified US$101.5 billion of debt linked
to the Dubai government and its state-owned non-financial
corporates.
The rating agency also believes that Dubai's likely direct exposure
to such contingent liabilities is further reduced to US$12.7
billion because some of the state-owned entities that are eligible
for support are not likely to need it, namely, DP World Limited
(rated Baa3 stable), Dubai Electricity and Water Authority (DEWA,
Ba1 stable).
However, Moody's says that other rated entities - Dubai
Holding Commercial Operations Group LLC (DHCOG, B2 negative),
Jebel Ali Free Zone FZE (JAFZ, B2 negative) and DIFC Investments
LLC (DIFCI, B3 negative) -- which together hold around US$3.8
billion of debt maturing in 2012, continue to face refinancing risks.
The latter three companies are the subject of the second Moody's
report published today.
In this second report, Moody's believes that DHCOG,
DIFCI and JAFZ could experience ratings volatility as they move closer
to the scheduled maturity dates for their respective debt issues,
although this depends on the steps chosen by each of the three issuers
to address their debt maturities, as well as the timing of those
steps in the coming months. The second report compares and contrasts
these three companies in a number of key areas, with a focus on
their exposure to refinancing risk, which is currently a common
rating driver along with their high debt leverage, particularly
in the case of DIFCI and JAFZ. Moody's also examines the
distinctions between the three companies' credit risk profiles and
how they affect the options that are available to the companies for addressing
their relative exposures to refinancing risk.
Moody's two new reports, entitled "Factoring Dubai's
Evolving Credit Profile Into Moody's Corporate Ratings -
Despite Lower Exposure to Contingent Liabilities, Execution Risk
Remains" and "DHCOG, DIFCI and JAFZ: Refinancing
Exposure Is the Key Rating Focus", are available on www.moodys.com.
NOTE TO JOURNALISTS ONLY: For more information, please call
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web site at www.moodys.com.
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Services Limited, Dubai Branch
Gate Precinct 3, Level 3
P.O. Box 506845
DIFC - Dubai
UAE
Telephone: 00971 4237 9536
Franck Nowak
Analyst
Corporate Finance Group
Telephone: 00971 4237 9536
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
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Moody's: Debt profile of Dubai state-owned corporates has evolved, but refinancing risks remain
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