Two Dubai firms’ credit rating pared

Source : Business Times - 2 Apr 2009

Moody’s cites exposure to the former boomtown’s property downturn

Moody’s Investors Service said yesterday that it had downgraded credit ratings on two Dubai state-linked companies including Emaar Properties due to their exposure to a real estate slump in the former boomtown.

Moody’s reduced ratings for Emaar and Dubai Holding Commercial Operations Group by one notch each, taking Emaar’s rating to Baa1 from A3, two notches above ‘junk’ status.

Dubai Holding’s rating was cut to A2 from A1, while Moody’s held ratings of four other Dubai-linked firms, including DP World and the Dubai Electricity & Water Authority, at A1. All ratings were assigned a negative outlook.

‘The one-notch downgrade of both entities reflects the more severe fundamental strains facing their business models,’ said Moody’s, which in February announced that it was considering downgrading the six companies.

Dubai’s real estate sector is facing an abrupt slowdown that could see residential real estate prices fall almost 40 per cent this year, a Reuters poll forecast last month.

Emaar derives the bulk of its revenues from Dubai, where it is building the world’s tallest tower and has opened Dubai Mall, said to be the world’s biggest shopping centre.

Dubai Holding operates developers that include Dubai Properties and Tatweer.

‘Both companies are real estate master developers with hospitality businesses and are thus more immediately exposed to the Dubai real estate market,’ Moody’s said. ‘We also believe that both companies’ mandates are relatively narrower in scope compared to the companies that were confirmed.’

The Moody’s move comes after Standard & Poor’s last month downgraded credit ratings of seven Dubai companies, including Emaar, and said that it was worried about the health of banks.

Moody’s said that it retained ratings of the other Dubai firms because Dubai’s move to sell US$10 billion in bonds to the United Arab Emirates central bank eased worries about the ability of the emirate’s companies to refinance and settle debts.

Dubai will begin disbursing funds to companies in two weeks, the director-general of the Dubai Department of Finance told Reuters last week.

The funds would target Dubai World - which owns DP World and Nakheel - Dubai Holding and domestic firms in Dubai’s sovereign wealth fund’s portfolio, Nasser al-Shaikh said.

Dubai is one of the seven emirates comprising the oil-exporting UAE federation, where Abu Dhabi holds more than 90 per cent of oil reserves.