Standard & Poor's says the outlook for the Dubai-based property developer is negative.
S&P cuts ratings for seven Dubai companies
The knock-on effects from the global economic downturn led Standard & Poor's, the global bond rating firm, to cut by one notch yesterday the credit ratings of Emaar Properties, the biggest developer in the country, and six other government-related companies, including the port operator DP World. S&P emphasised the downgrade did not reflect heightened concern that the companies would be unable to repay about US$17 billion (Dh62.44bn) in debts due this year and next. Those concerns have "eased" in recent weeks as Dubai launched a $20bn bond programme, the first $10bn of which has been purchased by the Central Bank. Dubai officials said the emirate would be able to meet all debt obligations. The emirate has formed a high-level task force to track the debts of government companies and assure they are paid, they said. Still, the impact of the global economic crisis on Dubai "is deeper and more severe than previously anticipated", said Farouk Soussa, a credit analyst at S&P. That will continue to weigh on Dubai, he said. The emirate's growth has been financed in recent years largely by borrowing in international markets. "The downgrades primarily reflect the ongoing impact of the deterioration in Dubai's economic fundamentals since the last quarter of 2008, as the global economic downturn continues to depress some of Dubai's key economic sectors, including trade, tourism and commerce," the ratings agency said. The agency lowered its outlook for the companies from stable to negative in December. It said yesterday their credit outlook remained negative. Emaar's long-term credit rating was cut to "BBB plus" from "A minus" with a negative outlook. DP World, DIFC Investments, Jebel Ali Free Zone (JAFZ), JAFZ Sukuk and Dubai Holding Commercial Operations Group were cut to "A" from "A plus", while Dubai Multi Commodities Centre Authority was cut to "A minus". S&P said all ratings remained underpinned by the belief that oil-rich Abu Dhabi would provide Dubai with support. The agency said it had "great confidence" in Dubai's ability to draw financial support from the Federal Government and Abu Dhabi, which has less foreign debt and a larger cushion of funds and income from oil. Dubai does not have a sovereign rating although government officials have repeatedly said they would like to get one. S&P has an in-house rating for the emirate that it does not reveal. In the past five years Dubai has embarked on a building programme financed significantly by foreign money. The emirate says it has accumulated about $80bn in debt. Falling property prices, fewer tourists and a general decline in business activity are hurting Dubai's economy. Access to loans, from either local or foreign banks, has contracted. Last month, Borse Dubai, the operator of local bourses, refinanced $3.4bn by borrowing $1.1bn in international markets and tapping government sources. S&P forecasts that Dubai's economy will shrink between 2 per cent and 4 per cent this year. This was further affected by the "sharp correction in the real estate market and an associated contraction in development and construction", it said. Standard Chartered Bank has said that the country could avert negative GDP growth, and effectively a recession, only if the Government takes appropriate steps to provide much missing liquidity and boost spending. Separately, four Dubai-based banks also had their long-term counterparty credit ratings put on "credit watch" with negative implications. They are Mashreqbank, Emirates Bank International, National Bank of Dubai and Dubai Islamic Bank. firstname.lastname@example.org