By Andy Sambidge
UPDATE 2: S&P puts Dubai banks on negative watch after gov't debts move.
Moody's on Thursday downgraded the ratings of all six government-related issuers (GRIs) in Dubai and left them on review for possible downgrade.
DP World, Dubai Electricity & Water Authority (DEWA), DIFC Investments (DIFCI), Jebel Ali Free Zone (JAFZ), Dubai Holding Commercial Operations Group (DHCOG) and Emaar Properties were all affected by the ratings downgrade, the agency said.
Moody's said the action was taken following the announcement by the Dubai government of a restructuring of Dubai World, including a requested standstill on all financings to Dubai World and its subsidiary Nakheel.
The government's announcement on Wednesday, which said consultants Deloitte had been appointed to help with the restructuring, sent the cost of insuring Dubai's debt against default soaring and bond prices tumbling.
Dubai's debt problems shook European banking shares on Thursday.
Banks shares, which had recovered over the last six months on hopes the worst of a global economic crisis was over, fell to lows not seen since May on fears of exposure to Dubai.
State-run Dubai World has $59 billion of liabilities, its subsidiary Nakheel said in August, a large proportion of Dubai's total debt of $80 billion.
"Moody's has to this point incorporated a substantial level of government support in the Dubai GRI ratings. However, following today's announcement we have reduced the government support that has been factored into its Dubai GRI ratings, moving them within one to three rating categories of their fundamental credit profiles," Moody's said.
Moody's added that the way the government deals with Nakheel's upcoming debt liabilities "will represent a litmus test for Dubai".
The ratings agency said an ongoing review of all of the Dubai GRIs will focus on the "implication that the restructuring of Dubai World has on the expected level of government support for all of the rated entities in Dubai".
"We will also consider which entities within the Dubai World group are affected by the restructuring, the degree to which this poses additional risk to the credit profiles of rated subsidiaries of Dubai World, as well as the terms and conditions of the standstill request and the degree to which it gives creditors an option for timely repayment," Moody's added.
Ratings affected by Thursday's action include: DP World issuer and debt ratings were downgraded to Baa2 from A3; DEWA issuer and debt ratings were downgraded to Baa2 from A3; DIFCI issuer and debt ratings were downgraded to Ba1 from A3; JAFZ issuer and debt ratings were downgraded to Ba1 from Baa1; DHCOG issuer and debt ratings were downgraded to Ba2 from Baa1; Emaar issuer ratings were downgraded to Ba2 from Baa1.
On November 4, Moody's previously downgraded ratings of DP World, DIFC Investments, DEWA, JAFZ, and Dubai Holding Commercial Operations Group.
Separately, ratings agency Standard & Poor's said on Thursday it had placed the credit ratings of four Dubai-based banks on negative outlook due to their exposure to Dubai World, which is seeking a debt standstill.
The agency said in a statement it has placed on negative watch the counterparty credit ratings of Emirates Bank International (EIB) and National Bank of Dubai (NBD), both of which are merging into Emirates NBD, Mashreqbank and Dubai Islamic Bank.
"The rating actions reflect the large exposure these banks have to Dubai World and Nakheel, and more generally to Dubai-based government-related entities, and the risks that the standstill agreement would pose to these banks," credit analyst Mohamed Damak said in a statement.
S&P has an A- counterparty credit rating on EIB, NBD and Mashreqbank and a BBB+ rating on Dubai Islamic Bank.
The main cause of this situation today in Dubai is wrong Financial management and the reason for this was having wrong people at the top. This is the time the Dubai government should take stock of the situation and try to rectify and learn from their mistakes. Just appointing people on the basis of white colour or language and paying them hefty perks will not solve the problem. Financial management is very very critical and selection should be done on real merit. The Dubai government should realise this atleast now. Thanks Ahmed
Dubai World better change its slogan & reposition itself - Dubai LTD.