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Wed 10 Feb 2010 03:19 PM

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S&P lowers ratings on ETA Group over Dubai worries

Industrial group placed on CreditWatch negative over 'volatile operations in Dubai'.

S&P lowers ratings on ETA Group over Dubai worries
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Citing “weaker than expected” and "increasingly volatile operations”, ratings agency Standard & Poor’s (S&P) has revised its long-term corporate credit rating on Dubai’s ETA Group from ‘BB+’ to ‘BB-‘.  

The agency also lowered the debt rating on the group’s $300 million unsecured bank loan, which is due in 2012, by the same amount. ETA Group subsidiaries Emirates Trading Agency, ETA Star Holdings and Associated Construction and Investments are the joint borrowers on that loan.

Furthermore, all ETA Group ratings were put on CreditWatch with negative implications. S&P warned that a further review of ETA’s business performance in the next four weeks could lead to another downgrade.

"The downgrade and CreditWatch placement reflect our view of the likely adverse effects of the current economic slowdown on ETA's cyclical activities, especially those relating to what we see as the group's weaker-than-expected and increasingly volatile operations in Dubai," said Standard & Poor's credit analyst Mohammed Fayek.

"In our opinion, this could pressure ETA's liquidity position, as we see that its debt profile is largely short-term, exceeding available resources. Our rating action also includes the removal of the one-notch uplift previously incorporated for ownership support.

“This is due to us seeing less certainty than previously anticipated regarding the likelihood and timeliness of extraordinary ownership support," Fayek added.

While S&P accepted ETA’s diversification and activity in a number of regions, it cited a potential reduction in cash inflows from Dubai as offering limited future visibility.

The UAE sector generated around 55 percent of ETA Group revenues in 2008.  

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