x Abu Dhabi, UAESunday 21 January 2018

Moody's downgrades Jebel Ali Free Zone credit rating

Moody's downgraded the Jebel Ali Free Zone, citing financial trouble at the state-owned business park's parent company, Dubai World.

DUBAI // A major credit ratings firm downgraded the Jebel Ali Free Zone (JAFZ), citing financial trouble at the state-owned business park's parent company, Dubai World. Moody's Investors Service lowered the JAFZ's rating by one level to "A3", four steps above non-investment-grade, after a downgrade on July 8 to "A2". Credit ratings affect the ease with which firms can raise capital from investors and borrow money on international markets. Companies with higher ratings are thought to be less likely to default on loans, leading to lower interest rates and borrowing costs.

When it lowered JAFZ's rating yesterday, Moody's put three other Dubai firms under review for possible downgrades: the port operator DP World; DIFC Investments, a firm owned by the Dubai International Financial Centre; and the Dubai Electricity and Water Authority, the state-owned utility. All three have "A1" ratings, Moody's said in a statement. "Today's rating actions reflect the still limited transparency on government policy and criteria toward the provision of support to government-related issuers," Moody's said.

Dubai is preparing to borrow a second US$10 billion (Dh36.73bn) as part of a $20bn bond programme to help government-controlled companies hit by the global recession, and last month announced it has set up an independent agency to manage the funds. The new entity may raise more funds if required to help government-owned firms struggling to meet their debt obligations. "While the announcement emphasises the Government's willingness to support its [government-related firms] in principle, further disclosure is required on the specific conditions and mechanisms of such support, as well as on which of its [companies] are considered strategically important," Moody's said.

Speculation has grown since Dubai announced the $20bn bond programme in February over precisely where the money would go. A spokesman for Dubai's Department of Finance said last month that his department would "not disclose how the funds are disbursed", and it was up to companies receiving funds to reveal the size of their packages. "Over the course of the ratings review, Moody's hopes to obtain further details on these issues in order to reassess the currently high government support that is factored into its Dubai [government-related company] ratings," Moody's said.

The ratings firm yesterday left unchanged the "A3" rating of Dubai Holding Commercial Operations Group (DHCOG) and the "Baa1" rating of Emaar Properties, but said they remain on review for downgrade pending the merger of DHCOG's property units with Emaar. The merger was announced in June. Dubai and its government-owned companies have borrowed $80bn to finance the emirate's transformation into a regional financial and tourist centre.

Nakheel, the property developer controlled by Dubai World, has a $3.52bn Islamic bond maturing in December. How Dubai will handle that debt has emerged as a key question for investors and ratings agencies. "Although not rated by Moody's, Nakheel's maturity remains a major test of the Government's willingness to support state companies, which will ultimately determine the various degrees of government support that are factored into Dubai [government-related company] ratings," Moody's said.