Dubai Electricity and Water Authority (DEWA), the state-owned utility backed by the emirate's government, has denied it faces a deadline next week to make a US$2 billion (Dh7.34bn) payment triggered by recent ratings downgrades. "DEWA is very strong financially," a spokesman said. "There has been no request from banks." The denial came after a report that DEWA's securitisation instrument, Thor Asset Purchase, might have to be redeemed in full next week because of downgrades to the company's investment rating.
The three main raters, Fitch Ratings, Moody's Investors Service and Standard and Poor's, have recently downgraded Thor, which matures in 2036. Three main Thor investors are reported to be ready to waive their entitlement to repayment. DEWA was last month said to be seeking to raise $2bn through a bond issue early next year. Moody's became the latest agency to undertake an overall downgrade of Dubai companies when it re-rated the six Dubai Government-related issuers (GRIs) it examines.
"This rating action follows recent comments and statements from government officials, which cause us to believe that no meaningful government support should be assumed for any entity that is not directly part of or formally guaranteed by the Government," the agency said. "As a result, Moody's has reduced the Government support assumptions for all six issuers." The six Dubai entities affected are Dubai World, DEWA, Jebel Ali Free Zone, Dubai Holding Commercial Operations Group, Emaar Properties and DIFC Investments. All remain on review for further downgrade, Moody's said.
"In recent statements the Government has highlighted that it sees no legal obligation to support non-guaranteed debt of its GRIs," it said. "[Those] that are able to demonstrate a viable business model and an ability to service their debt obligations over the long term remain eligible for support from the Government's Financial Support Fund. "Taking into account the Government's most recent position, Moody's no longer believes it appropriate to assume timely support that results in any uplift for the ratings of four of the GRIs.
"We view the probability of support for DEWA and DIFC as being diminished but sufficient to lift these ratings by one notch." DEWA is rated at "Ba2" and DIFC Investments at "B2", both one level above junk status. Meanwhile, bondholders of the Nakheel sukuk that is due to be redeemed on Monday took part in a conference call organised by Deutsche Bank yesterday. Deutsche Bank, which is trustee to the sukuk, said it was seeking clarity from the issuer about its plans to restructure debt, according to two investors who participated in the conference call. Bloomberg reported that the call finished without any discussion of adopting specific recommendations, said the investors, who declined to be identified because the discussion was private.
One New York hedge fund manager said: "It was a 'listen-only' call that repeated all the public statements by the Dubai Government. There was absolutely no news or new information. It was a total waste of time." A letter from Ashurst, the London law firm hired by the non-Gulf bondholders, has been sent to Nakheel rejecting the call for a standstill on the sukuk repayment and seeking repayment in full on the due date.
A bondholder said: "We will make it clear that we are not afraid to push the nuclear button." "We will make it as difficult as possible for Dubai to borrow money at good rates again and try to embarrass them that way. We are enforcing our rights and expecting payment." Nakheel received Dh3bn in financial assistance from Dubai World in the first half of this year as it dealt with a cash shortage and mounting obligations, a financial statement released yesterday said.
Details of the support come a day after Abdulrahman al Saleh, the director general of the Dubai Department of Finance, said that Dubai World had been lent roughly Dh9bn this year from a fund created to help Dubai companies affected by the economic downturn. The debt situation at Nakheel and its parent company, Dubai World, has been under close scrutiny since the Dubai Financial Support Fund announced on November 25 that it was taking over the restructuring of the companies and would seek a six-month reprieve from creditors.
Ian Munro, an analyst at MAC Capital in Dubai, said Nakheel's financial statement "highlights the precarious point their cash flow situation has reached". Nakheel posted a loss of Dh13.43bn from January to the end of June, mostly because of write-downs of the value of its large land bank as prices across the country dropped by as much as 50 per cent, the financial statement said. Revenue dropped by 78 per cent to Dh1.97bn. The company said it wrote down the value of land and properties that were still under construction by Dh12.2bn during the period. Restructuring is already under way, with layoffs of staff and slowdowns of its projects, Nakheel said.
* additional reporting by Bradley Hope @Email:firstname.lastname@example.org