Ratings agencies revise Dubai corporates

Two international ratings agencies, Standard and Poor's and Fitch, on Wednesday revised their outlooks on a number of Dubai government-related enterprises (GREs) in the light of slowing economic growth in the emirate and the effects of the global financial crisis.

Standard and Poor's said that it expected Dubai's economic growth in the emirate in 2009 to be six percent and its long-term prospects remained solid.

The agency said it had revised its outlook on the ratings of six Dubai-based GREs - DIFC Investments LLC, DP World Ltd., Dubai Holding Commercial Operations Group LLC (DHCOG), Dubai Multi Commodities Centre Authority, Jebel Ali Free Zone (FZE), and JAFZ Sukuk Ltd - to negative from stable.

"The outlook revision reflects the impact of the difficult global macroeconomic and financing environment on the Emirate of Dubai (not rated), to which the ratings on these six entities are directly linked," said Standard & Poor's credit analyst Farouk Soussa.

"The medium-term risks to Dubai's economy have, in our view, increased as demand in the all-important real estate sector shows clear signs of abating, raising the possibility of a sharp correction in the real estate market, and an associated contraction in development and construction," he added.

The impact on Dubai's overall economy would be significant as construction and real estate account for almost half of Dubai's GDP, it said.

Dubai's position as a global commercial and financial hub also exposes it to the risk of a prolonged downturn in global trade and financial intermediation, it added.

Dubai's long-term economic prospects remain solid, however, as it had positioned itself well to benefit from the eventual resurgence of global and regional commerce, finance, and tourism, the agency said.

Its position within the UAE was also supportive given the strength of the federation's external balances and currency, it concluded.

Fitch Ratings downgraded the ratings of Dubai Holding Commercial Operations Group (DHCOG) and Dubia Electricity and Water Group (DEWA), "due to the worsened economic outlook for Dubai and the likely pressure this will put on Dubai's public finances."

"Transparency in both these areas, though improved, remains weak, and is detrimental to the ratings in the current environment. The ratings continue to benefit from potential support from the government and Dubai's strong position and role within the UAE federation," the agency said in a statement.

It downgraded both entities' Long-term Issuer Default rating (IDR), in line with its assessment of Dubai's creditworthiness, and senior unsecured rating to A+ from AA minus.

An improved regulatory framework had given DEWA a better rating than it would previously have warranted, the agency said.

"On a standalone basis, and also because of the expected negative impact of investment requirements on its financial profile, DEWA's creditworthiness would warrant a Long-term IDR below 'A+'. The recently revamped regulatory frameworks for electricity and water tariffs offer some mitigation to the forecast deterioration in financial profile, as evidenced by strong earnings performance in 2008," it said.