Moody’s Investors Service downgraded the credit rating of Dubai’s Emaar Properties
Posted by 7starsdubai on April 2, 2009
Moody’s Investors Service downgraded the credit rating of Dubai’s Emaar Properties (EMAAR.AI), the Middle East largest developer, to just above “junk” status due to its exposure to the emirate’s struggling property market.
Moody’s downgraded its ratings for Emaar and Dubai Holding Commercial Operations Group by one notch each, taking Emaar’s rating to Baa1 from A3, two notches above “junk”. The outlook for both companies is negative.
“The one-notch downgrade of both entities reflects the more severe fundamental strains facing their business models,” Philipp Lotter, Moody’s lead analyst for Gulf-based corporates, said in a statement.
The term “junk” is used for all bonds for Standard & Poors’ ratings below BBB and/or Moody’s ratings below Baa.
“I don’t think the downgrades have come as much of a surprise to the markets,” said Fahd Iqbal, an analyst at investment bank EFG-Hermes. “The downgrade will serve more to confirm investors’ existing negative view on Dubai, given its tough economic outlook for this year and next.”
Real estate firms such as Emaar, which sits at the heart of the Gulf region’s building boom, have been hit by the impact of the financial crisis both at home and overseas.
Dubai’s once-booming property market has slowed in recent months and home financing has evaporated, impacting Emaar’s sales and property prices.
Last month, Emaar was downgraded by S&P to BBB+ from A- with a negative outlook, taking the developer almost below investment grade.
Shares in the company that is 31% owned by Dubai’s government according to Zawya.com, closed flat at AED2.20 on the Dubai Financial Market Wednesday. The stock lost 85% of its value last year.
“Both companies are real estate master developers with hospitality businesses and are thus more immediately exposed to the Dubai real estate market,” Moody’s said.
Amid the downturn in the property market, many large developers have been scaling back projects to survive the downturn.
In February, a report by investment bank Morgan Stanley (MS) said the United Arab Emirates is delaying or canceling real-estate projects worth more than $260 billion. An earlier HSBC (HBC) report said Dubai is delaying or canceling almost 60 projects worth $75 billion.
Moody’s said it held off from downgrading the companies further because of Dubai’s recently announced bond program.
“The severity of potential rating actions….was moderated as a result of the supportive action by the federal government,” said Moody’s Lotter.
“We thus balance a severe deterioration in the economic prospects of Dubai with a now explicit reliance on federal assistance,” he said.
Dubai announced a $20-billion bond program in February, and said the federal government of the U.A.E. had fully subscribed half of it. The move allayed some fears that Dubai and government-owned companies would struggle to refinance debt obligations this year.
Moody’s said that although the bond “provided greater assurances to the market that explicit financial support from the federal government is forthcoming”, it also highlighted the emirate’s “vulnerability in the current global economic environment given its reliance on volatile sectors such as real estate, trade, financial services and tourism, as well as its burgeoning debt and refinancing challenges.”
Moody’s Wednesday also confirmed its ratings for other key Dubai Inc. corporates including DP World, Dubai Electricity & Water Authority and DIFC Investments.
The ratings agency said the outlook for all firms is negative, “reflecting the prevailing uncertainty that exists within Dubai Inc., in particular the ongoing structural changes to some of Dubai’s core domestic sectors including real estate, and the potential for economic and market conditions to remain depressed over a longer period”.
By Stefania Bianchi, Dow Jones Newswires
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