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08 Dec 2009
DIFC, December 08, 2009 -- Moody's Investors Service today downgraded all six Dubai government-related
issuers (GRIs). This rating action follows recent comments and
statements from government officials, which cause us to believe
that no meaningful government support should be assumed for any entity
that is not directly part of or formally guaranteed by the government.
As a result, Moody's has reduced the government support assumptions
for all six issuers. All ratings now reflect the respective company's
stand-alone credit profile (baseline credit assessment) with the
exception of Dubai Electricity & Water Authority (DEWA) and DIFC Investments,
whose revised ratings include one notch uplift for government support
recognising their stronger strategic linkage to Dubai's core economic
Moody's has also downgraded various baseline credit assessments
to reflect (1) increased liquidity challenges in a tougher financing environment
that we expect will continue for a protracted period, and (2) the
longer term implications thereof on Dubai's economy.
Ratings affected by today's rating actions include the following:
- DP World issuer and debt ratings were downgraded to Ba1 from
- Dubai Electricity & Water Authority (DEWA) issuer and debt
ratings were downgraded to Ba2 from Baa2;
- Jebel Ali Free Zone (JAFZ) issuer and debt ratings were downgraded
to B1 from Ba1;
- Dubai Holding Commercial Operations Group (DHCOG) issuer and
debt ratings were downgraded to B1 from Ba2;
- Emaar Properties issuer ratings were downgraded to B1 from Ba2;
- DIFC Investments (DIFCI) issuer and debt ratings were downgraded
to B2 from Ba1.
All ratings remain on review for further downgrade.
Since the announcement by the Dubai government on November 25 that it
would restructure the debt of Dubai World and request a standstill on
financings of some of its liabilities, the government has further
clarified its position towards GRI obligations. In recent statements
the government has highlighted that it sees no legal obligation to support
non-guaranteed debt of its GRI's. GRI's that
are able to demonstrate a viable business model and an ability to service
their debt obligations over the long-term remain eligible for support
from the government's Financial Support Fund. Taking into
account the government's most recent position, Moody's no longer
believes it appropriate to assume timely support that results in any uplift
for the ratings of four of the GRIs. We view the probability of
support for DEWA and DIFC as being diminished but sufficient to lift these
ratings by one notch.
The ongoing review for downgrade reflects continuing uncertainty over
the potential negative implications on ratings from (1) the Dubai World
restructuring itself, including the risk of contagion effects for
DP World and JAFZ as subsidiaries of Dubai World; (2) the potential
for reduced investor confidence to diminish the ability of Dubai corporates
to access the debt capital markets in order to refinance debt maturities,
and (3) the possible longer term detrimental impact on Dubai's economy.
Accordingly, Moody's will continue to closely monitor restructuring
events involving Dubai World over the coming weeks.
In addition, the review of DHCOG and Emaar reflects prospects for
a prolonged real estate market slump, as well as the evolving nature
of both entities as a result of their pending merger.
The review of DEWA's ratings considers the potential for liquidity pressure
due to the triggering of an acceleration clause on its USD 2 billion Receivables
Securitisation Programme that is issued under Thor Asset Purchase Company
The last rating action on Dubai's corporate GRI's was on November
26, 2009, when Moody's downgraded ratings of DP World,
DIFC Investments, DEWA, JAFZ, Emaar and Dubai Holding
Commercial Operations Group.
The principal methodology used in rating these entities was "The Application
of Joint Default Analysis to Government Related Issuers", published
in April 2005, which determines ratings on the basis of a company's
baseline credit assessment, as well as credit enhancement for exceptional
government support. Accordingly, ratings were assigned by
evaluating factors we believe are relevant to the baseline credit assessment
of the issuers, such as i) the business risk and competitive position
of the companies versus others within its industry, ii) the capital
structure and financial risk of the companies, iii) the projected
performance of the companies over the near to intermediate term,
and iv) management's track record and tolerance for risk. These
attributes were compared against other issuers both within and outside
of the companies' core industries and ratings are believed to be comparable
to those of other issuers of similar credit risk. Other methodologies
and factors that may have been considered in the process of rating this
issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Philipp L. Lotter
Senior Vice President
Moody's Middle East Ltd.
Moody's announces further downgrades to Dubai Inc. corporates
David G. Staples
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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