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| Photo: Standard & Poor's cut the Dubai government's confidential credit rating Tuesday and downgraded six state-backed entities. | ||
Standard & Poor's cut the Dubai government's confidential credit rating Tuesday and downgraded six state-backed entities, citing the global economic meltdown's sharper-than-expected impact on the Mideast's one-time boomtown.
The move comes despite a recent promise by the United Arab Emirates federal government to inject at least $10 billion into the ailing city-state, one of seven members of the UAE federation. The funds are meant to prop up the debt-ridden emirate and its many state-controlled enterprises.
S&P analyst Farouk Soussa said Tuesday's downgrades were the result of a cut to Dubai's sovereign rating, which is not publicly disclosed.
The decision reflects concerns about Dubai's debt-fueled exposure to the worsening world economy through sectors such as trade, tourism and commerce, he said.
"The global economic impacts have been deeper and more severe than we had anticipated," Soussa said in a conference call with reporters. Dubai's small and open economy "can do very little to protect its key sectors from the effects of the global economic downturn," he added.
The six entities affected by S&P's one-notch cut are DIFC Investments, port operator DP World, Jebel Ali Free Zone and its related JAFZ Sukuk Islamic financing package, the Dubai Multi Commodities Center Authority and Dubai Holding Commercial Operations Group. All remain investment-grade at 'A-' or above.
The outlook for each, as well as Dubai's own credit rating, is negative, meaning further downgrades are possible.
Lower ratings can add to borrowing costs and make new financing tougher to get.
DP World, the only of the six that is publicly listed, has seen its shares tumble 85 percent since they were floated in November 2007. The Dubai government retains an 80 percent stake in the company, which declined to comment on the downgrade.
Separately, S&P cut its long-term corporate credit rating on Dubai property developer Emaar Properties PJSC to 'BBB+' from 'A-'.
"The rating action reflects the continued weak real estate markets in Dubai, and our increased uncertainties about the depth of the downturn and the pace of eventual recovery," analyst Alf Stenqvist said.
The ratings of four Dubai-based banks were also put on watch for a possible rating downgrade. The banks are: Emirates Bank International, National Bank of Dubai, Mashreqbank, and Dubai Islamic Bank.
Dubai and its related companies are believed to hold $80 billion in debt, a figure higher than the city-state's annual economic output.
Soussa estimated more than half that debt -- about $42 billion -- will come due within three years.
After an approximately $10 billion payment this year and another $7 billion due in 2010, the emirate's debt repayment bill is expected to jump to $25 billion in 2011, he said.
By Adam Schreck(AP)
