International ratings agency Moody's Investors Service has downgraded the ratings of five Dubai companies, citing that recent disclosures that reveal the increasing conditionality under which government support may be provided to the government- related issuers (GRIs).

The issuer and debt ratings of DP World, Dubai Electricity and Water Authority (Dewa) and DIFC Investments were revised to A3 from A1.

Jebel Ali Free Zone (Jafz) and Dubai Holding Commercial Operations Group (DHCOG) saw their issuer and debt ratings down to Baa1 from A3.

Issuer ratings for Emaar Properties was kept at Baa1, but its ratings remain on review for downgrade, along with those of DHCOG, said the ratings agency.

The ratings outlook for DP World, Dewa, DIFC and Jafz is negative, Moody's said in a report. The ratings agency said that real estate prices, oil prices, tourism data, stock market and credit default spreads show signs of an incipient recovery.

"The Dubai economy seems to have bottomed out in the first half of the year and is now in a phase of tentative consolidation. Real estate prices – a crucial indicator for Dubai given the dominance of the sector – have risen modestly in selective locations since their trough in March. Equity prices have recovered since their low point in Q1 and CDS spreads have narrowed considerably from a peak of about 1,200 basis points in March to below 300 basis points. Much of this reflects improved investor confidence," said Moody's.

It said the tourism sector in Dubai has displayed resilience in the face of adverse global trends. The departure of expatriates from Dubai has reportedly slowed significantly, reflecting some stabilisation of the job market.

Regional economic prospects have been buoyed by the strong recovery in the oil price. However, UAE banking sector data indicate that credit conditions remain tough, with a sharp slowdown in credit growth over the first half of the year. Local banks have raised their capital levels in anticipation of a rise in non-performing loans as the sharp economic correction has a lagged effect on asset quality.

Banks' willingness to lend will be a key variable governing the pace of economic recovery in Dubai as elsewhere in the world and of course, given its high degree of economic openness, the emirate remains vulnerable to any setback in the global economic recuperation, said the ratings agency analysts.

Moody's said Dubai Inc's $50 billion (Dh183.5bn) worth of debt is falling due over the coming three years and about half of it could be restructured.

"We also believe, that within the $50bn of maturing debt, GRIs of strategic importance and with viable long-term business models are likely to be able to roll-over maturing debt," said Moody's analysts.


'No significant market reaction'

Simrin Sandhu, an analyst with Standard Chartered bank, yesterday said that underlying reasons cited by Moody's for the downgrade are not new and have been the subject of market debate for a while

"We do not expect any significant market reaction to this development as these ratings have been on review for a possible downgrade for some time. Despite the downgrade being related to a change in Dubai's tone with regard to the Dubai credits, we expect support to be strong for the names strategically important to Dubai, such as DP World, Jafz, DIFC Investments, and Dewa."

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