A leading international ratings service said Tuesday it had cut its credit rating of three Dubai government-backed entities, voicing concerns about the emirate's willingness to continue backing some companies in the one-time Arab boomtown hard hit by the global recession.
Standard & Poor's Ratings Service said it downgraded the ratings for port operator DP World, the Jebel Ali Free Zone and Dubai Multi Commodities Centre Authority, all of which had been on credit watch with negative implications since the end of April.
"The rating actions reflect Standard & Poor's reappraisal of the likelihood of extraordinary financial support by the Government of Dubai to its GREs to ensure the timely repayment of their financial obligations," the agency said in a statement. S&P said the reappraisal also was the result of "increased uncertainty regarding the government's willingness to provide such support" to Nakheel, the property developer famed for building Dubai's manmade islands.
The move comes as Dubai is pushing to shore up its image as a global business and tourism hub, a reputation that suffered some sharp blows as the global meltdown raised questions about the semiautonomous sheikdom's debt load.
Dubai has already issued a $10 billion bond tranche to help some of its harder hit firms, but still faces debt issues.
S&P said the downgrades also "reflect our view of the stand-alone credit profiles of the entities, which in certain instances, we consider to have deteriorated."
In a reflection of a possible move to shore up company balance sheets through mergers and consolidations, Emaar Properties PJSC, which is behind the world's tallest building in Dubai, announced recently that it was merging with three rival developers. The companies with which it is consolidating are units of Dubai Holding, a firm owned by the emirate's ruler.
Emaar, which is publicly traded, has seen its shares tumble since the announcement, a slide traders have said is linked to the lack to details about the deal.
The move has yielded mixed results for Emaar, with S&P saying it revised its ratings for the firm to developing while Moody's Investors Service, in a separate statement, said it placed Emaar on review for possible downgrade. Moody's also downgraded Dubai Holding's ratings to A3 from A2, and placed it on review for further downgrade.
Property developers in Dubai have been particularly hard hit, with prices declining by as much as 40 percent in the first quarter of the year, according to some estimates. That decline and Emaar and Dubai Holding's exposure impacted Moody's decision, the ratings service said.
"Whilst Moody's acknowledges that Dubai's property market seems to have largely bottomed out, the financial and structural implications of its decline have taken its toll on both companies' debt protection metrics," Philipp Lotter, Moody's Dubai-based senior vice president, said in a statement.
"Moody's believes that these are likely to weaken further before the full effects of market recovery translate into stronger cash flows, irrespective of the announced merger."