Ratings agency puts ETA Group on credit watch

Ratings agency Standard & Poor's put Dubai-based ETA Group on negative watch on Thursday with a view to downgrading its credit rating due to concerns over the construction and property-dominated firm's increased leverage.

Standard & Poor's placed the firm, whose property division has a $10 billion portfolio, on CreditWatch with negative implications with long-term BBB- corporate credit rating, the ratings agency said in a statement.

It also put a 'BBB-' debt rating on a $300 million senior unsecured bank loan due 2012 issued by subsidiaries Emirates Trading Agency, ETA Star Holdings, and Associated Construction and Investments Co.

The potential downgrade to junk rating is the latest indication Dubai-based companies are feeling the squeeze from tighter lending conditions, a fall in property prices and a collapse in investor confidence as the global credit crunch begins to sweep across the Gulf Arab region's trading hub.

"These actions are due to concerns over increasing financial leverage, the likely adverse effect of the continuing global economic slowdown on ETA's cyclical activities, and low levels of headroom under financial covenants," said Standard & Poor's credit analyst Stuart Clements.

ETA's construction unit is the sixth largest UAE contractor, according to a survey by London-based MEED magazine.

Its real estate arm ETA Star Properties said in October it planned to sell Islamic bonds worth up to $200 million in the first quarter of next year to fund expansion in North Africa and Europe and was planning to develop residential and office towers in the Russian capital Moscow with a value of $600 million next year.

"ETA's debt levels have risen significantly in recent years to meet increasing working capital demands from both higher commodity prices and the company's rapid growth in revenue," S&P said.

The group also operates in mechanical engineering, car trading and shipping - all sectors "considered to be highly sensitive to economic conditions".

"The recent collapse in prices in the dry bulk shipping market (81 percent of ETA's fleet), of about 90 percent from the 2008 peak, may put pressure on some of its time charter counterparties and lead to some renegotiations," S&P said.

S&P will conclude the CreditWatch within 90 days.

ETA Star executive director Abid Junaid could not immediately be reached for comment. (Reuters)