Moody's could review six Dubai firm ratings

Dubai: Six Dubai companies have been put on review for a possible downgrade by Moody's Investors Service.

The six companies are: Dubai Holding Commercial Operations Group, Dubai Ports World (DP World), Dubai Iinternational Financial Centre (DIFC) Investments, Dubai Electricity and Water Authority (Dewa), Jebel Ali Free Zone (Jafza) and Emaar Properties.

All currently have a rating of A1 except Emaar Properties, which is rated A3. The news reflects the global economic crisis, the impact of which has begun to be felt in Dubai and across the Gulf.

"Dubai's open economy has been hit harder by the global financial crisis than most others in the region, largely because of its higher leverage, concentration in cyclical sectors, and more limited fiscal resources", says Moody's.

Ratings assigned by organisations such as Moody's assess the risk that a company may default on its credit obligations. Any eventual downgrade of these six companies will however not be more than two notches, Moody's said, ensuring all the affected companies would still remain within the investment grade.

Dubai's refinancing needs were estimated at $15 billion by Moody's last month. In the present global financial environment, a possible downgrade of key Dubai companies - which have borrowed heavily from the government - could be foreseen. "Given current difficult market conditions it does not come as a surprise, in fact bonds of Dubai Inc companies already trade lower than their current ratings would suggest. Thus, a possible downgrade would only reflect already existing market reality and would not come as a surprise. It would give Moody's also more space to manoeuvre in light of an envisaged Dubai sovereign rating," said Dr Eckart Woertz, Programme Manager for Economics, at the Gulf Research Centre.

When contacted by Gulf News, Sultan Ahmad Bin Sulayem, Chairman of DP World, declined to comment on Moody's announcement. Efforts to get hold of four of the other affected companies for comment were unsuccessful.

The Moody's announcement is for a review that may only potentially lead to a downgrade. Any such move is likely to be resisted with strong counterarguments from the Dubai government.

The review process will take into account several factors. Chief among these will be a verification from the Dubai government of the exact composition of its declared assets of $90 billion which could be used to help struggling firms. "Moody's would be reassured if a substantial portion of these assets were liquid and unencumbered, and therefore available should any government-owned company in Dubai require extraordinary assistance with debt repayments in either local or foreign currency," the announcement said.