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Moody's puts UAE GRI ratings under review for downgrade

DUBAI: Moody's Investors Service has placed the ratings of government-related issuers (GRIs) in the UAE on review for possible downgrade. This includes all GRIs that are owned by either the federal UAE government, or the government of Abu Dhabi. The review was prompted by a need to re-validate, and possibly reconsider our support assumptions following Dubai's recent decision to explicitly segregate its direct obligations from those of its GRIs, following which a decision was subsequently made to pursue a debt restructuring at Dubai World . The ratings under review currently benefit from very high implicit government support assumptions and assume that even in most potential stress scenarios the government will not make a distinction between servicing its direct obligations and those of its state-owned companies.

Issuers whose ratings were placed on review for downgrade include thefollowing:
* Abu Dhabi National Energy Company ( TAQA ) issuer and debt ratings: Aa2 / on review for downgrade. The Prime-1 short term ratings were affirmed.

* Mubadala Development Company ( Mubadala ) issuer and debt ratings: Aa2 / on review for downgrade. The Prime-1 short term ratings were affirmed.

* Tourism Development & Investment Company (TDIC) issuer and debt ratings: Aa2 / on review for downgrade

* International Petroleum Investment Company ( IPIC ) issuer and debt ratings: Aa2 / on review for downgrade. The Prime-1 short term ratings were affirmed.

* Emirates Telecommunications Company ( Etisalat ) issuer ratings: Aa2 / on review for downgrade
* Dolphin Energy (Dolphin) long term debt rating: Aa3 / on review for downgrade
* Aldar Properties (Aldar) issuer and debt ratings: A3 / on review for downgrade

As part of the review process, we will continue to engage in discussions with the respective government officials and issuers regarding their policies and positions on each of the issuers to assess whether these ratings continue to be positioned appropriately. Assuming that we conclude that support assumptions should remain high, we would only expect moderate adjustments to ratings, though it could be multi-notch in particular where baseline credit assessments are low. Moody's will also be publishing a Special Comment in the coming days outlining the criteria we are applying in determining the support assumptions as part of the review and to provide broader guidance to the market on the key areas of focus. We expect to conclude the review over the next three months.

Moody's last rating actions on each of the names placed under review was on Oct 17, 2007 ( TAQA , assignment of provisional guaranteed bond ratings), April 27, 2009 ( Mubadala , assignment of bond ratings), Oct 1, 2009 ( TDIC , assignment of bond ratings), April 27, 2009 ( IPIC , initial rating assignment), July 22, 2008 ( Etisalat , initial rating assignment), July 29, 2009 (Dolphin, assignment of bond and bank debt ratings), and May 19, 2009 ( Aldar , assignment of bond ratings).

The principal methodology used in rating these entities was "The Application of Joint Default Analysis to Government Related Issuers", published in April 2005, which determines ratings on the basis of a company's baseline credit assessment, as well as credit enhancement for exceptional government support. Accordingly, ratings were assigned by evaluating factors we believe are relevant to the baseline credit assessment of the issuers, such as i) the business risk and competitive position of the companies versus others within its industry, ii) the capital structure and financial risk of the companies, iii) the projected performance of the companies over the near to intermediate term, and iv) management's track record and tolerance for risk. These attributes were compared against other issuers both within and outside of the companies' core industries and ratings are believed to be comparable to those of other issuers of similar credit risk. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Earlier, Moody's Investors Service today downgraded all six Dubai government-related issuers (GRIs). This rating action follows recent comments and statements from government officials, which cause us to believe that no meaningful government support should be assumed for any entity that is not directly part of or formally guaranteed by the government. As a result, Moody's has reduced the government support assumptions for all six issuers. All ratings now reflect the respective company's stand-alone credit profile (baseline credit assessment) with the exception of Dubai Electricity & Water Authority ( DEWA ) and DIFC Investments , whose revised ratings include one-notch uplift for government support recognising their stronger strategic linkage to Dubai's core economic development policies. Moody's has also downgraded various baseline credit assessments to reflect (1) increased liquidity challenges in a tougher financing environment that we expect will continue for a protracted period, and (2) the longer term implications thereof*on Dubai's economy.

Ratings affected by Tuesday's rating actions include the following:
* DP World issuer and debt ratings were downgraded to Ba1 from Baa2;
* Dubai Electricity & Water Authority ( DEWA ) issuer and debt ratings were downgraded to Ba2 from Baa2;

* Jebel Ali Free Zone ( JAFZ ) issuer and debt ratings were downgraded to B1 from Ba1;

* Dubai Holding Commercial Operations Group ( DHCOG ) issuer and debt ratings were downgraded to B1 from Ba2; - Emaar Properties issuer ratings were downgraded to B1 from Ba2; - DIFC Investments ( DIFCI ) issuer and debt ratings were downgraded to B2 from Ba1.

All ratings remain on review for further downgrade.

Since the announcement by the Dubai government on Nov 25 that it would restructure the debt of Dubai World and request a standstill on financings of some of its liabilities, the government has further clarified its position towards GRI obligations. In recent statements the government has highlighted that it sees no legal obligation to support non-guaranteed debt of its GRI's. GRI's that are able to demonstrate a viable business model and an ability to service their debt obligations over the long-term remain eligible for support from the government's Financial Support Fund. Taking into account the government's most recent position, Moody's no longer believes it appropriate to assume timely support that results in any uplift for the ratings of four of the GRIs.

We view the probability of support for DEWA and DIFC as being diminished but sufficient to lift these ratings by one notch.

The ongoing review for downgrade reflects continuing uncertainty over the potential negative implications on ratings from (1) the Dubai World restructuring itself, including the risk of contagion effects for DP World and JAFZ as subsidiaries of Dubai World ; (2) the potential for reduced investor confidence to diminish the ability of Dubai corporates to access the debt capital markets in order to refinance debt maturities, and (3) the possible longer term detrimental impact on Dubai's economy.

Accordingly, Moody's will continue to closely monitor restructuring events involving Dubai World over the coming weeks.

In addition, the review of DHCOG and Emaar reflects prospects for a prolonged real estate market slump, as well as the evolving nature of both entities as a result of their pending merger.

The review of DEWA 's ratings considers the potential for liquidity pressure due to the triggering of an acceleration clause on its $2 billion Receivables Securitisation Programme that is issued under Thor Asset Purchase Company Limited. The last rating action on Dubai's corporate GRI's was on Nov 26, 2009, when Moody's downgraded ratings of DP World , DIFC Investments , DEWA , JAFZ , Emaar and Dubai Holding Commercial Operations Group .

© Arab Times 2009