Tuesday, Feb 09, 2010

By Mirna Sleiman

Of ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--Standard & Poor's, the ratings agency, expects more corporate defaults in the Middle East after Dubai WorldDubai World's debt crisis but doesn't foresee a change in the creditworthiness of oil-rich Gulf Cooperation Council, or GCC, states, a senior executive said.

"On the corporate level, defaults are not over yet," Jan Willem Plantagie, Standard & Poor's regional head for the Middle East, told Zawya Dow Jones in a recent interview. "There is still distress in the real-estate market and many companies still need to reschedule debt."

S&P, which rates five of the six GCC countries and more than 120 companies across the region, has lost four clients since last year after it slashed ratings, taking some companies to non-investment grade.

The rating cuts followed a deterioration in GCC companies' asset quality among worsening economic conditions and concerns over the impact of debt defaults at Saudi conglomerates Al GosaibiAl Gosaibi and Saad GroupSaad Group, and Dubai WorldDubai World's standstill request in late November on $26 billion of debt.

"I don't see rating changes happening on the sovereign side given the strong balance sheets of governments in the region," he said. Gulf states, which pump a fifth of the world's oil, are weathering the global financial crisis better than most with crude prices hovering around $70 a barrel helping to maintain modest growth levels.

Emirates NBDEmirates NBD, the region's largest bank by assets, last month ended its relationship with S&P amid signs of rising tensions between U.A.E. government-owned companies and the credit ratings agency. The lender is 55.6% owned by the Investment Corp. of Dubai, or ICD, the Dubai government investment arm, according to Zawya.com.

ASSET QUALITY

In December, S&P said it expected asset quality of Emirates NBDEmirates NBD subsidiaries Emirates Bank International and National Bank of Dubai to decline further in coming months and probably deepen as a result of Dubai WorldDubai World's debt standstill request. Emirates NBDEmirates NBD subsequently announced that it had decided to discontinue the use of S&P for the rating of its banking subsidiaries and would utilize the services of three other credit rating agencies.

The Emirates NBDEmirates NBD announcement came in the same week that Dubai Holding Commercial Operations Group, the conglomerate owned by Dubai's ruler, ended its relationship with S&P due to disagreements over transparency.

"We respect the decision from companies to withdraw their ratings but I can assure you that will not change our criteria to keep a rating," Plantagie said. "Transparency is still a general concern in this region."

Last year, Abu Dhabi National Energy Co., or Taqa, the energy firm majority owned by the Abu Dhabi government, ended its relationship with S&P, questioning its ratings methodology, after S&P downgraded the company.

Also in 2009, Bahrain and London-listed Investcorp Bank B.S.C. terminated its public rating contract with S&P after an "unjustified" downgrade of the investment firm's credit rating. Standard and Poor's had lowered the long and short-term credit ratings on Investcorp to 'BB+/B' from 'BBB/A-2.'

Despite the withdrawals, S&P remains committed to expanding in the region, Plantagie said. "We're now 10 people in Dubai covering the GCC and plan to add another five to seven this year. But of course more people are involved in working on ratings in the Middle East."

The agency expects 10 companies to seek new ratings this year, Plantagie said.

S&P doesn't rate the U.A.E. but rates Abu Dhabi and Ras Al Khaimah, two of the seven sheikdoms that make up the U.A.E.

-By Mirna Sleiman, Dow Jones Newswires; +9714 446-1698; mirna.sleiman@dowjones.com

Copyright (c) 2010 Dow Jones & Company, Inc.

(END) Dow Jones Newswires

09-02-10 0725GMT