DUBAI - Moody’s Investors Service on Wednesday downgraded five Dubai government-linked companies due to continued economic pressure and uncertainty over the government’s readiness to support those struggling financially.The ratings agency downgraded the credit rating of DP World, Dubai Electricity and Water Authority (DEWA), DIFC Investments, Jebel Ali Free Zone (JAFZ) and Dubai Holding Commercial Operations Group (DHCOG).
Moody’s maintained its rating on Emaar Properties on review for possible downgrade pending the outcome of its proposed merger with Dubai Holding’s three real estate units.
“The downgrades follow recent disclosures of increased conditionality around when support could be provided to these GRIs (government-related issuers),” the agency said in a statement.
“This includes the specific criteria that will be considered by the recently established Dubai Financial Support Fund when assessing whether financial assistance should be provided.”
Moody’s said the companies’ current ratings are “substantially” above those that would be based on their stand-alone credit quality.
Moody’s in August downgraded JAFZ and placed other Dubai-related entities on review for possible downgrade.
The ability of Dubai-related entities to meet debt obligations and the capacity of the government to support them has been a growing concern for analysts and investors.
The Dubai government and its related companies are struggling under a massive debt pile in excess of $80 billion, much of which is held by Dubai World.
Market concerns over Dubai’s ability to service its debt have eased in recent months, evident in the narrowing of Dubai’s credit default swaps (CDS), the cost of insuring the sovereign's debt against default.
With the improvement in Dubai’s perceived creditworthiness the emirate is stepping up efforts to bolster its finances with plans to raise $6.5 billion in conventional and Islamic bonds as it seeks to borrow its way out of financial trouble.
Nakheel and other entities have already received emergency funds through the first $10 billion tranche of a $20 billion sovereign bond programme, fully subscribed by the UAE Central Bank, and Dubai is in the process of selling the second $10 billion.
Moody’s described the liquidity of the companies under review as “robust”, but highlighted DIFC Investments and DHCOG as likely to need additional government funds.
Moody’s said it expects the second $10 billion tranche to be funded “imminently” and that Dubai’s successful bond issuance is likely to support its overall liquidity profile.