The credit quality of corporates in Dubai is likely to benefit from the combination of emerging markets' growth prospects, strong oil prices and access to debt capital markets, Moody's Investors Service said in a new report . However, the rating agency said that delays in addressing structural issues along with Dubai's $20 bln of direct debt maturing in 2014 remain areas of focus for investors.
The credit quality of Dubai's rated corporates is likely to benefit from economic growth in G-20 emerging economies of 5%-6% in 2013 and the positive impact of high oil prices on government budgets in the Gulf Cooperation Council (GCC). Proxy trade indicators suggest that Dubai's non-oil sector is growing in the low single digits. Buyers have snapped up new real estate developments by Emaar Properties PJSC (rated Ba3/stable), reflecting renewed investor confidence in a recovering property market. This has also benefited the real estate and hospitality divisions of Dubai Holding Commercial Operations Group (DHCOG, B2/stable).
However, 2014 will be a pivotal year for Dubai as $20 bln of direct government debt related to Dubai World becomes due. Alhough the Abu Dhabi government and Abu Dhabi GRIs are the lenders to Dubai, it will be constructive for the overall environment when clarity emerges as to how these maturities will be addressed, although market expectations that they will be extended are a natural assumption.
Moreover, weaknesses in the institutional framework continue to cloud the picture. Little progress has been made on clarifying and strengthening the legal framework for insolvencies/debt restructuring, while details of the Dubai government's capacity to support its GRIs remain uncertain.
Overall, Moody's expects more issuers to access the debt market in 2013 to extend debt maturities, diversify debt instruments and seek medium-term refinancing. Yield-hunting international investors have led Dubai government bond spreads to narrow, paving the way for recent debt and sukuk issuances by the sovereign, government-related issuers (GRIs) and corporates in the private sector. One example is DEWA, which sold $1 bln of sukuk in March 2013.
