Moody’s announces further downgrades to Dubai Inc. corporates

Moody's Investors Service has downgraded all six Dubai government-related issuers (GRIs). This rating action follows recent comments and statements from government officials, which cause the rating agency 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 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 development policies.
Ratings affected by the rating actions include:
– DP World issuer and debt ratings were downgraded to Ba1 from Baa2;
– 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. Moody’s views 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.
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 bln Receivables Securitisation Programme that is issued under Thor Asset Purchase Company Limited.
The last rating action on Dubai's corporate GRI's was on November 26, when Moody's downgraded ratings of DP World, DIFC Investments, DEWA, JAFZ, Emaar and Dubai Holding Commercial Operations Group.