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Moody's: Debt profile of Dubai state-owned corporates has evolved, but refinancing risks remain

Dubai government faces lower contingent liabilities overall; pressure remains on DHCOG , DIFCI , JAFZ

London, 06 December 2011 -- Moody's Investors Service acknowledges the significant progress made by the government of Dubai and its state-owned non-financial corporates in tackling maturing debt. However, in view of the companies' continued medium-term need to refinance debt, the rating agency is maintaining its conservative support assumptions for Dubai's rated state-owned corporates, resulting in limited, if any, ratings uplift from their stand-alone profiles. Nevertheless, Moody's has taken positive rating actions over the past year for DP World , DEWA and Emaar on the back of improvements in their stand-alone profiles.

In the first of two new reports published today, Moody's explains that Dubai's core profile has evolved since the announcement in November 2009 of a 'standstill' on the debt of its flagship conglomerate, Dubai World. With the help of financial assistance from the Abu Dhabi and UAE governments and its own stabilising economic fundamentals, Dubai has been able to repay, refinance or restructure certain debt obligations held by strategically important state-owned entities. While this has alleviated some of Moody's previous concerns about the sustainability of Dubai's business model given its exposure to financial risk, there have so far been few signs of material voluntary deleveraging and migration to more sustainable capital structures among corporates with currently weak credit profiles. This raises concerns about renewed medium-term pressures when the refinanced obligations become due, and about Dubai potentially needing further financial support. Moody's continued 'low-to-moderate' support assumptions for the rated state-owned entities result in limited ratings uplift for their final ratings relative to their stand-alone profiles.

Moody's new report notes that the Dubai government's public disclosures since 2009 reflect a redefinition and narrowing of the scope of the strategic holdings that Dubai now considers as warranting its support. The rating agency has consequently assessed Dubai's exposure to contingent liabilities emanating from state-owned corporates (excluding the debt of state-owned banks) as amounting to around US$33.7 billion -- significantly below Dubai's state-owned corporate debt of US$68.6 billion, and excluding US$5.1 billion of government-guaranteed corporate debt. In total, Moody's has identified US$101.5 billion of debt linked to the Dubai government and its state-owned non-financial corporates.

The rating agency also believes that Dubai's likely direct exposure to such contingent liabilities is further reduced to US$12.7 billion because some of the state-owned entities that are eligible for support are not likely to need it, namely, DP World Limited (rated Baa3 stable), Dubai Electricity and Water Authority ( DEWA , Ba1 stable).

However, Moody's says that other rated entities - Dubai Holding Commercial Operations Group LLC ( DHCOG , B2 negative), Jebel Ali Free Zone FZE ( JAFZ , B2 negative) and DIFC Investments LLC ( DIFCI , B3 negative) -- which together hold around US$3.8 billion of debt maturing in 2012, continue to face refinancing risks. The latter three companies are the subject of the second Moody's report published today.

In this second report, Moody's believes that DHCOG , DIFCI and JAFZ could experience ratings volatility as they move closer to the scheduled maturity dates for their respective debt issues, although this depends on the steps chosen by each of the three issuers to address their debt maturities, as well as the timing of those steps in the coming months. The second report compares and contrasts these three companies in a number of key areas, with a focus on their exposure to refinancing risk, which is currently a common rating driver along with their high debt leverage, particularly in the case of DIFCI and JAFZ . Moody's also examines the distinctions between the three companies' credit risk profiles and how they affect the options that are available to the companies for addressing their relative exposures to refinancing risk.

Moody's two new reports, entitled "Factoring Dubai's Evolving Credit Profile Into Moody's Corporate Ratings - Despite Lower Exposure to Contingent Liabilities, Execution Risk Remains" and " DHCOG , DIFCI and JAFZ : Refinancing Exposure Is the Key Rating Focus", are available on www.moodys.com.

David G. Staples MD - Corporate Finance Corporate Finance Group Moody's Investors Services Limited, Dubai Branch Gate Precinct 3, Level 3 P.O. Box 506845 DIFC - Dubai UAE Telephone: 00971 4237 9536

Franck Nowak Analyst Corporate Finance Group Telephone: 00971 4237 9536

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