Moody’s downgrades various Dubai corporate ratings

Moody's Investors Service has downgraded various government-related issuers (GRIs) in Dubai, concluding a review initiated on August 4. The ratings remain investment-grade and are substantially above those that would be based on the entities' stand-alone credit quality. This reflects the strategic importance of the GRIs to the government, which makes it likely that the government would extend them support, should such support be needed. However, the downgrades reflect recent disclosures that reveal the increasing conditionality under which support may be provided.
The ratings outlook for DP World, Dubai Electricity & Water Authority (DEWA), DIFC Investments and Jebel Ali Free Zone (JAFZ) is negative, reflecting ongoing economic pressures. The ratings of both Dubai Holding Commercial Operations Group (DHCOG) and Emaar Properties have been maintained on review for downgrade, pending the completion of Moody's ongoing assessment of the impact of the proposed merger of Emaar with DHCOG's real estate operations.
The downgrades follow recent disclosures of increased conditionality around when support could be provided to these GRIs. This includes the specific criteria that will be considered by the recently established Dubai Financial Support Fund when assessing whether financial assistance should be provided. Among these criteria are whether the GRIs are able to demonstrate sustainable business plans, the on-going support of their existing financial creditors, and realistic prospects of fulfilling their repayment obligations.
Moody's is making a greater distinction between its view of the creditworthiness of Dubai's GRIs and that of the Dubai central government, which is itself viewed by Moody's as benefiting from support from the UAE federal government (rated Aa2, stable). The UAE federal government continues to be seen as an important source of support for Dubai and for funding future increases, if required, to the Dubai Financial Support Fund.
Moody's views the liquidity profiles of four of the six rated GRIs (DP World, DEWA, JAFZ and Emaar) as fairly robust, with only moderate maturities until 2012. Moody's notes that DIFCI and DHCOG are understood to have already received liquidity support and will likely require additional liquidity support in the future.
Moody's assumes that the second USD 10 bln tranche will be funded imminently to further prop up the gradually depleting Support Fund. Dubai's recent successful government bond issuance is also likely to be supportive to Dubai's liquidity profile and alleviate some of the pressures that would arise from further bail-outs, although the use of proceeds has not been specified.
In terms of stabilizing the outlooks, an overall upturn in economic activity and sound liquidity management are key factors for the majority of the rated GRIs, particularly those with sound underlying business models. Those companies in more vulnerable sectors (real estate) may potentially remain under pressure over a more prolonged period.