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Rating Action:

Moody's changes outlook on DEWA to positive from stable

13 Oct 2010

Probability of default (PDR) rating assigned

DIFC - Dubai, October 13, 2010 -- Moody's Investors Service has today changed the outlook to positive from stable for Dubai Electricity and Water Authority (DEWA) including related entities (DEWA Funding Ltd. and its guaranteed debt instruments (USD1 billion notes due April 2015). At the same time, Moody's has converted DEWA's issuer rating into a Ba2 corporate family rating (CFR) and assigned a probability of default rating (PDR) of Ba2, in line with the rating agency's practice for corporate issuers with non-investment-grade ratings.

RATINGS RATIONALE

The change in outlook to positive reflects the constructive impact of DEWA's ongoing efforts to extend its debt maturity profile, thereby strengthening its liquidity profile. In April 2010, DEWA raised USD1 billion worth of five-year notes and signed a number of Export Credit Agency (ECA) agreements on 31 August 2010 worth more than AED4.2 billion (ca. USD1.1 billion) with a maturity of 12 years each. Moody's expects that the estimated AED4.4 billion worth of debt repayments that are due by September 2011, as well as capital expenditures and working capital requirements, will be adequately covered by DEWA's cash on hand (which amounted to AED2.55 billion as at 30 June 2010) and available credit facilities.

Moreover, despite the slowdown in economic growth that affected Dubai over the past 18 months, Moody's notes that DEWA's operating performance has held up reasonably well. Revenues in the first six months of 2010 grew by 3.4% compared with the same period in 2009, with electricity demand growing by 7.8% whilst water consumption fell by 0.4% due to reduced demand from the construction sector. DEWA's operating profit fell slightly due to higher input costs related to natural gas and fuel. DEWA still benefits from favourable off-take agreements below market price.

Looking ahead, Moody's says that DEWA's ratings could be upgraded over the medium term provided that DEWA continues to prudently manage its debt maturity profile, especially its upcoming debt maturities, without compromising its capital expenditure programme. Any upward rating pressure would also assume that DEWA will continue to report solid operating and cash flow performance in line with the anticipated further growth in Dubai's economic activity and GDP. Overall, Moody's expects DEWA's operating performance to remain solid and to exhibit growth in line with added capacity.

DEWA's ratings continue to benefit from a one-notch uplift assuming government support.

PREVIOUS RATING ACTION & METHODOLOGY USED

Moody's last rating action on DEWA was implemented on 1 April 2010, when the rating agency assigned a provisional (P) Ba2 rating to DEWA's Global Medium Term Notes (GMTN) Programme with a stable outlook. Prior to that, Moody's had confirmed DEWA's Ba2 issuer and sukuk ratings with a stable outlook on 25 March 2010, thereby concluding the review for possible downgrade, which had been initiated on 8 December 2009.

The principal methodologies used in rating Dubai Electricity and Water Authority and DEWA Funding Ltd. were "Government-Related Issuers: Methodology Update" published in July 2010, and "Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA", published in June 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

Dubai Electricity and Water Authority ("DEWA") is the state-owned monopoly provider of electricity and water in Dubai in the United Arab Emirates, where it serves more than 480,000 customers. The company operates as a vertically integrated multi-utility, with business activities including electricity generation, transmission and distribution as well as water desalination and distribution. Total generation capacity is 7,829 megawatt while water desalination capacity is 330 million imperial gallons a day.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

DIFC - Dubai
Martin Kohlhase
Asst Vice President - Analyst
Corporate Finance Group
Moody's Middle East Ltd.
Telephone: +971-44-01-9536

London
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
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Moody's changes outlook on DEWA to positive from stable
No Related Data.
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