Fitch downgrades ratings on DEWA, Dubai Holding unit

Fitch on Thursday downgraded Dubai Holding Commercial Operations Group and Dubai Electricity and Water Authority (DEWA), and put the rating of Etisalat on rating watch negative.

Dubai Holding Commercial Operations Group and DEWA were both downgraded to A- from A+, while Etisalat's longterm rating of AA- was put on rating watch negative.

“The...entities have strong operational and strategic ties with the Dubai and UAE governments respectively and the actions reflect Fitch's view that the credit profiles of the sovereign entities have weakened and lower certainty as to how any government support may be provided,” the credit rating agency said.

Fitch said its view of the UAE sovereign reflects increasing demands on the country’s relatively small fiscal resources during the current period of economic stress.

“Although the sovereign credit remains strong, the lack of clarity on the process for non-budgetary financial transfers between the UAE federal government, central bank and individual emirates, is a source of weakness,” it said.

Dubai’s government debt may have tripled to $30bn by the end of the year, which would be almost 40 percent of the emirate’s gross national product (GDP), Fitch added.

“The capacity of the Dubai government to support the corporate sector is constrained by its small and narrow revenue base and limited financing flexibility. Although the authorities have indicated plans to issue a second bond tranche of the same size as that which was placed with the UAE Central Bank in February ($10bn), the source and timing of this issue is uncertain.”

Dubai Holding Commercial Operations Group is the holding company of Dubai Holding's real estate, tourism, infrastructure and telecommunications businesses.

DEWA’s investment requirements are likely to impact its future financial profile, although a revamped regulatory framework for electricity and water tariffs offers some mitigation to the forecast deterioration in the financial profile, Fitch said.

The rating of Etisalat was placed on rating watch negative while further clarification on support mechanisms is sought.

Any downgrade of the telecom operator’s rating resulting from the move is not expected to exceed one notch, and the watch is expected to be resolved in the next two weeks, Fitch said.

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