Standard & Poor's has slashed the credit ratings of six Dubai state-linked companies to junk status, among them world-wide ports operator DP World, the international ratings agency said on Thursday. S&P said it made the changes as the likelihood of extraordinary support from the Dubai government appears "low" after the emirate ruled out guaranteeing the debt of Dubai World, its flagship conglomerate.
The six Dubai government-related entities (GREs) lowered to junk status were DP World, DIFC Investments, Jebel Ali Free Zone, Dubai Multi Commodities Centre Authority, Dubai Holding Commercial Operations Group and Emaar Properties PJSC. S&P also lowered its ratings on four Dubai-based banks to junk status because of their large exposures to Dubai companies including Dubai World and its troubled property subsidiary Nakheel.
Credit ratings for the six companies and four banks remain under surveillance and could be downgraded further, the agency said. The four banks affected at Emirates Bank International PJSC (EBI), National Bank of Dubai (NBD), Mashreqbank (Mashreq) and Dubai Islamic Bank (DIB). The assets and liabilities of EBI and NBD were recently merged, S&P noted.
"The rating actions reflect our decision to lower our assessments of the banks' respective stand-alone credit profiles because of their high exposure to Dubai-based GREs, which we downgraded earlier today," said Standard & Poor's credit analyst Emmanuel Volland. S&P said it does not rate Dubai World or Nakheel, its property arm hammered in the global economic and financial crises.
In a later statement, S&P said it has also revised its expectation for the likelihood of extraordinary support from the Dubai government to "low" for the six Dubai government related entities (GREs) that it rates. "The rating actions reflect our lowered expectations regarding the likelihood of extraordinary support from the Dubai government for the six GREs," said S&P credit analyst Farouk Soussa. "And we now consider the likelihood of extraordinary government support for these GREs as low."
The Dubai government rocked global financial markets by announcing a week ago that state-controlled Dubai World was seeking a six-month standstill on credit payments. Investors subsequently were alarmed when the head of the Dubai finance department said the government never intended to guarantee Dubai World's 59 billion dollars in debt, the lion's share of the city state's borrowings estimated at up to 100 billion dollars.
S&P said the decision to downgrade the six companies was "reinforced by the Dubai government's recent comments stating its belief that Dubai World 'should receive financing based on the viability of its projects, not on government guarantees.'"
S&P noted that under its criteria, "a standstill is considered a default." "As evidenced in the case of Dubai World and Nakheel, the Dubai government is either unable or unwilling, or both, to provide extraordinary government support in the form of timely and sufficient financial support to those of its GREs that provide essential government services on its behalf," it said.
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