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INTERVIEW: Lack Of Clarity On Govt Support Hurts Dubai Co Rtgs -Moody's

Wednesday, Feb 08, 2012

--Poor visibility on support for fiscally strained companies damaging sentiment

--Assigns lower chance of government support than public statements suggest

--Says Dubai's core sectors like trade, retail and hospitality are performing well

By Asa Fitch

Of ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--Poor visibility on government support for financially strained companies in Dubai has put a drain on their credit ratings and damaged investor sentiment in the emirate, according to the managing director of regional corporate finance at Moody's Investors Service.

A lack of clarity about what would happen if Dubai's state-linked companies could not refinance debt on commercial terms remains a critical source of uncertainty for investors and credit ratings agencies, David Staples, the managing director of EMEA corporate finance at Moody's, told Zawya Dow Jones.

"If there was visibility over exactly what would happen if commercial refinancing couldn't be achieved and that there was a backstop in place of some nature, then we would be able to rate to the probability of that backstop coming," he said.

"You have to assign a lower probability to [government support] than public statements would suggest one might do," he said, "and if you look at CDSs or bond pricing, that is the market view. It damages market confidence and investor confidence."

The question of the form and extent of state support for troubled firms came to the fore after Moody's and other ratings agencies raised the alarm last year over the debt situation at three government-related companies in Dubai--Dubai Holding Commercial Operations Group, DIFC Investments and the Jebel Ali Free Zone. Together, those three firms had $3.8 billion of debt maturing this year.

DEGREE OF COMFORT?

While DHCOG successfully paid off $500 million of debt in January and the Dubai government has said there is no intention to restructure debt coming due this year, Staples said what's lacking is a disclosed contingency plan if normal refinancing doesn't work.

"We feel some degree of comfort from public statements that those entities are seen to be entities that should meet their obligations when due, but we haven't seen the direct statement that if they are unable to refinance those obligations they will be supported so that restructuring is not needed," he said.

Despite the uncertainties, Moody's affirmed DHCOG's ratings last month after it repaid its bond and gave it a stable outlook. A pick-up in Dubai's traditionally strong sectors including trade, hospitality and retail sales has also helped ease financial strains. Some of the emirate's stronger companies are faring well, according to Franck Nowak, a Moody's analyst.

"The Dubai core sectors are performing well - trade, retail and hospitality," he said. "If you put the real estate in a box and set it aside for a minute, other key sectors are functioning well and supporting cashflows."

Yet Staples said decisions about Dubai's financing strategy for its less-healthy companies were an enigma in part because the government's plans were being hashed out by a small coterie of officials. The financial strategy is being overseen by members of the government's Supreme Fiscal Committee and officials at the Dubai Financial Support Fund--a mechanism set up in 2009 to manage and distribute $20 billion in aid to entities deemed strategically important to the emirate.

"I don't think that there's a widespread willingness to discuss [the strategy] more broadly," Staples said. "That's why you get off-the-record, confidential comments that are not helpful to the process because one cannot know whether the confidential comment is government policy or one individual's scenario."

-By Asa Fitch, Dow Jones Newswires, +971 4 446-1685, asa.fitch@dowjones.com

Copyright (c) 2012 Dow Jones & Co.

(END) Dow Jones Newswires

08-02-12 1024GMT