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Moody's Concerned About Dubai's Medium-Term Refinancing Needs

Wednesday, Dec 07, 2011

(This story was originally published Tuesday.)

--Moody's warns of refinancing risks at three Dubai government-related entities

--Says Dubai may need further financial support in absence of capital-raising measures

-- DHCOG , DIFCI and JAFZ have debt repayments worth $3.8 billion due in 2012

By Nicolas Parasie and Oliver Klaus

Of ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--Ratings agency Moody's Investor Service has warned that three Dubai government-related entities that have debt repayments worth $3.8 billion due in 2012 may face refinancing risks, and raised wider concerns over the emirate's potential need for further financial support in the absence of capital-raising measures.

Moody's, in a report published Tuesday, said Dubai Holding Commercial Operations Group , or DHCOG , Jebel Ali Free Zone , or JAFZ , and DIFC Investments were all facing refinancing risks and may experience ratings volatility as they move closer to next year's debt maturity dates.

"The refinancing risk affecting DHCOG , DIFCI and JAFZ is exacerbated by the fact that they entered the crisis with weak liquidity profiles and their reliance on what turned out to be weaker than anticipated growth trajectories for some business segments, which determined their ability to service their short to medium-term debt maturities," Moody's said.

Despite Dubai's ability to repay, refinance and restructure its debt since 2009, with financial assistance from Abu Dhabi, Moody's said it had so far seen "few signs of material voluntary deleveraging."

"This raises concerns about renewed medium-term pressures when the refinanced obligations become due, and about Dubai's potential need for further financial support in the absence of capital-raising measures," Moody's said.

Dubai in total holds around $101.5 billion of debt linked to the Dubai government and its state-owned non-financial corporates, according to the report.

Moody's said it had identified a total $4.1 billion of debt linked to strategic corporations with refinancing exposure that is due to mature in 2012, the bulk of which is due at DHCOG at $500 million, at DIFCI at $1.25 billion and JAFZ at $2.04 billion.

"2012 will be a pivotal year for state-owned entities given their debt maturity profiles," Moody's noted.

"In the case of DIFCI and JAFZ , we have concerns about the sustainability of their debt capital structures given their leverage profiles and the possibility that the market may not be willing to refinance the maturing debt at the same leverage metrics that the companies are likely to have when the debt matures," Moody's said.

The ratings agency warned that DIFCI in particular was exposed to execution risk under its core strategy of relying on asset disposals to partly repay its maturing $1.25 billion sukuk in June 2012.

"Despite better metrics, DHCOG 's final ratings are positioned alongside those of JAFZ due to their high level of exposure to the real estate sector," Moody's said.

DHCOG and JAFC are rated 'B2' with a negative outlook by Moody's, while DIFCI carries a 'B3' rating with negative outlook.

Moody's said that another $5.1 billion of outstanding debt was due next year at strategic entities such as DP World, Dubai Electricity and Water Authority, or Dewa, and Emirates Airlines.

However, these "have sufficient cash holdings to meet their debt obligations with limited need to tap capital markets, potentially easing the way for weaker Dubai state-owned entities to refinance," it said.

-By Nicolas Parasie and Oliver Klaus, Dow Jones Newswires; +9714 446-1681; nicolas.parasie@dowjones.com

Copyright (c) 2011 Dow Jones & Co.

(END) Dow Jones Newswires

07-12-11 0401GMT