Monday, April 27, 2009

S&P confirms Dubai’s financial security

Standard & Poor’s (S&P) Ratings Services revealed on Tuesday that it expects the UAE Central Bank to subscribe to the remaining $10bn of Dubai’s $20bn bond "when the need arises".

In a conference call with media and financial analysts, S&P credit analyst Farouk Soussa said it had always viewed Dubai as fully integrated into the federation of the UAE, describing the emirate as the UAE’s “non-oil economic driver”.

The $20bn bond will be sufficient to meet all the refinancing needs of Dubai’s government-related entities (GREs) for the next two years, according to S&P, which it says amounts to a further $10bn this year, $7bn in 2010, and $25bn in 2011.

S&P believes that Dubai GREs, with the possible exception of real estate companies, will have no difficulties raising money in the commercial market.

Despite S&P’s optimism over raising money, the agency lowered its ratings on six Dubai GREs by one notch.

The 'A+' ratings on DIFC Investments LLC, DP World Ltd., Jebel Ali Free Zone (FZE), and JAFZ Sukuk Ltd were lowered to 'A', and the 'A-1' short-term ratings were affirmed.

The 'A/A-1' ratings on Dubai Multi Commodities Centre Authority were lowered to 'A-/A-2', while the 'A+' long-term rating on Dubai Holding Commercial Operations Group LLC (DHCOG) was also lowered to 'A'.

S&P also lowered its long-term corporate credit rating on Dubai-based property developer Emaar Properties PJSC to 'BBB+' from 'A-'.

The outlook on all entities remains negative.

S&P noted that the free market policies of Dubai, and the relatively high leveraging of many of its organisations, had led to the global downturn affecting the emirate.

“Dubai is a small open economy that will continue to be exposed to the global downturn,” said Soussa.

Real estate weakness was compounding the difficulties facing Dubai, and could push the emirate into negative growth this year, he added.

"Demand in the all important real estate sector also continues to show clear signs of having abated, with indications that a sharp correction in the real estate market, and an associated contraction in development and construction, is currently underway.

"We expect that as a result of these factors, the economy may contract in 2009," explained Soussa.