Moody’s Investors Service has downgraded the long-term foreign currency and local currency issuer ratings of Dubai investment bank Shuaa Capital by two notches.
Its short-term ratings were also cut while the rating outlook was negative. The rating action concluded the review for possible downgrade of Shuaa’s ratings that Moody’s initiated on December 10 2008.
“The downgrade was prompted by the company’s deteriorating fundamentals, especially its recurring profitability and weakening liquidity profile, which has become heavily reliant on short-term bank lines to finance relatively illiquid assets,” said John Tofarides, analyst in Moody’s Financial Institutions group based in Dubai.
As part of its review, Moody’s has also taken into consideration the general investment environment, the weak debt capital markets and the company’s difficulties in raising new capital.
However, Moody’s acknowledged that Shuaa’s established presence in the Gulf region and good reputation, would help it recover in times of prosperity.
Shareholders of the investment bank rejected a measure on Wednesday that would have forced the bank to dissolve itself.
Regulators had asked the company, which posted an annual loss of AED948 million last year, to put the dissolution question to shareholders (under Article 285 of the Commercial Companies Law) because its losses exceeded 50 percent of its capital.
The UAE law came into force as a result of the company being unable to increase its legal capital from its reserves due to negative covenants on issuing new shares before the mandatory convertible note issued to Dubai Banking Group (DBG) back in November 2007 is converted.
Established in 1979, Shuaa is one of the oldest and leading investment banking institutions in the Gulf region. As of December 31 2008, Shuaa reported total consolidated assets of $1.2 billion.
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