By Martin Morris
Ratings agency takes account of planned merger of real estate operations with Emaar Properties.
Standard & Poor's on Monday confirmed it is to keep its 'A' long-term credit ratings on Dubai-based real estate developer and hotel operator Dubai Holding Commercial Operations Group LLC (DHCOG) on CreditWatch, where they were placed with negative implications on April 30, 2009."The CreditWatch status reflects our need to review our assessment of the likelihood of sufficient and timely extraordinary government support for DHCOG as a result of recent developments in Dubai and the company itself," said S&P credit analyst Alf Stenqvist.
The existing ratings on DHCOG reflect its key role in executing part of the government of Dubai's plan to develop the emirate into a major hub for commerce and tourism, and its 97.4% ownership by Sheikh Mohammed Bin Rashid Al Maktoum, the ruler of Dubai, the agency said.
On April 30 S&P placed all Dubai government-related entities (GREs), including DHCOG, on CreditWatch with negative implications in line with its view of the increased likelihood that the government of Dubai was considering the restructuring of debt in one of its key GREs, Nakheel (unrated).
S&P added that it reviewed all rated Dubai GREs because such a possibility stood at odds with its prior expectation that the government of Dubai was committed to providing extraordinary support to all its key GREs to allow them to service their respective obligations in a full and timely manner.
Fast forward to June 26, 2009 and DHCOG confirmed it intended to merge its three real estate businesses (Dubai Properties, Sama Dubai, and Tatweer) with Emaar, (BBB+/Watch Dev/--).
The combination of Emaar and DHCOG's real estate businesses will likely increase DHCOG's importance in the development of Dubai, although S&P says it is assuming that the merged entity will not be fully owned by DHCOG or indirectly by the ruler of Dubai or the government.
A merger will create possibilities for synergies and strengthen DHCOG's position in the Dubai real estate market, which, however, is currently is experiencing a severe downturn. The benefit on DHCOG's credit quality will also depend on the new entity's capital structure, the agency noted.
''The ratings could be lowered if, following a review, we believe that the likelihood of sufficient and timely extraordinary government support is lower than we currently assume.
''In resolving the CreditWatch listing we will reassess DHCOG's importance to the government and the development of Dubai combined with its future ownership structure within the prospective combined entity.
''We will also review the impact of the prospective merger on DHCOG's stand-alone credit quality, future business and financial strategies, and the capital structure of the merged entity,'' S&P added.