S&P cuts credit ratings on two Dubai firms, cites weaker economy

DUBAI: S&P Global Ratings cut its credit ratings for two Dubai state-owned companies, saying a weakening economy in the emirate was hurting the government’s ability to extend emergency support to the firms if needed.
The downgrades were a fresh sign of pressure on Dubai’s economy, where the real estate and equity markets are slumping. The emirate does not have a sovereign credit rating, so analysts often look at state firms as indicators of its financial health.
S&P lowered its rating on utility Dubai Electricity and Water Authority (DEWA) late on Tuesday to BBB from BBB-plus, assigning it a negative outlook, which indicates a significant chance of a further downgrade in future.
It was S&P’s first outright downgrade of DEWA. The agency had previously upgraded the company in 2012 and 2016, as the emirate recovered from a credit crisis that nearly caused it to default on its debt. A default was averted with $20 billion of aid from neighboring Abu Dhabi.
S&P also lowered its rating for real estate firm DIFC Investments (DIFCI) to BBB-minus, one step above junk status, from BBB, but with a stable outlook. DIFCI owns an office and retail complex in Dubai’s international financial center.
Analysts say that the pressures on Dubai are not as serious as those it faced a decade ago, and it has strengthened its finances since then by restructuring billions of dollars of debt at state-linked firms.
Dubai government bond prices and the cost of insuring Dubai sovereign debt showed little reaction on Wednesday to the S&P downgrades.