Government-owned companies sought to reassure investors after a ratings agency threatened to downgrade seven of Abu Dhabi's most prominent companies because its assumption of blanket government support was called into question. On Wednesday, Moody's Investors Service put on review for a possible downgrade Abu Dhabi National Energy Company (Taqa), Mubadala Development, the Tourism Development and Investment Company (TDIC), the International Petroleum Investment Company (IPIC), Aldar Properties, Emirates Telecommunications Company (Etisalat) and Dolphin Energy.
Mubadala and Dolphin said they would fully co-operate with the ratings agency. "Given our strategic importance - our sound business model, commitment to transparency and financial management discipline, we are confident that Mubadala is well placed ahead of these discussions," said Kate Triggs, the director of communications at the Government's strategic investment arm. Moody's plans to complete the review within three months.
Dolphin Energy, which produces gas in Qatar and pipes it to the UAE, said: "Given our sound business model and our long-term contracts with our customers, we are confident Dolphin Energy is well placed." Local markets have been nervous since the Dubai Government in late November asked creditors for a six-month delay to repay its debt while it restructures Dubai World. It has asserted that Dubai World's debts are not backed by the Government of Dubai. The announcement prompted sharp falls on local and regional stock markets and shook investor confidence.
But the sell-offs came to a halt yesterday when the Dubai Financial Market General Index rebounded to close 7 per cent higher. Emaar Properties, which called off its merger with three property units of Dubai Holding on Wednesday, rose 15 per cent as shareholders welcomed the news. The Abu Dhabi Securities Exchange General Index closed up 1.4 per cent. Abdulrahman al Saleh, the director general of Dubai's Department of Finance, also sought to assuage investors.
"Of course, the reaction by the global markets was psychological and came strongly," Mr al Saleh said. "However, the reaction is now softening as investors became more informed about what happened. Let me admit, in Dubai we are not good in publicising what we are doing as much as we are good in doing it." Since the announcement of Dubai's restructuring plans, investors have been seeking more information on the amount of debt being carried by Dubai's state-owned companies, including Dubai World.
By Wednesday, the Dubai market had fallen to a nine-month low after shedding all its gains for the year. Mr al Saleh said Dubai's difficulties were part of a broader global phenomenon in which investors became carried away and piled up too much debt. He said it was now crucial for the emirate to take "credible steps to restore the health of the financial system and businesses". Istithmar, Dubai World's private equity arm, has used debt to buy hotels, property and department stores around the world. The financial crisis has eaten into their value.
Dubai, which has little revenue from oil, has amassed an estimated US$85 billion (Dh308.54bn) in debt in recent years as it sought to become the regional centre for commerce, tourism and finance. Dubai World alone accumulated $26bn in debt and $59bn in liabilities. "When times are bad and asset valuations are falling, investors' losses are magnified by leverage," Mr al Saleh said. Meanwhile, the Dubai Electricity and Water Authority (DEWA) reacted to comments by ratings agencies that recent downgrades of its notes would accelerate their repayment. This would have forced the Dubai Government to repay $2bn on Monday. But Moody's said the note holders had "voluntarily waived" the acceleration and would renegotiate the terms of the deal. The notes mature in 2036.
DEWA said it was responding to "diverse and sometimes contradictory remarks" in the media. "DEWA does not have any significant exposure that causes concern," the company said. It also asserted that "none of DEWA's borrowing are in default and that we have unequivocal confirmation from lenders of the uninterrupted continuation of our facilities". Moody's Investors Service yesterday lowered the notes to "A3" from "A1", the third agency to do so.
TDIC said the actions taken by Moody's were "in response to events external to Abu Dhabi". It said Moody's did not take into account TDIC's status as company wholly owned by Abu Dhabi. * Additional reporting by Rebecca Bundhun @Email:email@example.com