DUBAI: Ratings firm has Moody’s has affirmed the Baa1 ratings of state-owned firms Dubai Electricity & Water Authority (DEWA) and DP World but revised their outlook to negative from stable.
“The rating action reflects the credit linkages between [the companies] and the government of Dubai. Moody’s expects a growing risk of structurally slower real GDP growth for the emirate of Dubai and deteriorating fiscal strength of the government amid increasing debt levels,” Moody’s commented in its separate ratings action on the Dubai firms.
The negative outlook on DEWA and DP World reflects the ratings agency’s expectation of a drawn-out slowdown in the non-oil sectors of the UAE economy, which Dubai is heavily reliant on for its revenue stream.
“Together with a limited pipeline of new revenue-raising measures and a counter-cyclical fiscal policy stance, increase the risk that the government’s debt burden will continue to rise,” it noted.
“Given DEWA’s sole operational exposure to Dubai and its full ownership by the government of Dubai, Moody’s considers that DEWA’s credit profile is tied to the economic and fiscal developments of the emirate.”
Moody’s also explained that considering DP World’s material operational concentration in Dubai and the high government ownership, the global port operator’s credit profile was tied to the economic and fiscal developments of the emirate.
The Dubai government indirectly holds 80.45 percent of DP World through Port and Free Zone World FZE, a subsidiary of investment company Dubai World.
DP World’s reported gross debt has increased to $11.6 billion as of June 30, from $7.7 billion as of 31 December 2017.
DEWA’s credit position meanwhile has continuously improved since 2011 as a supportive tariff structure and disciplined capital spending have yielded strong free cash flow generation.
“DEWA enjoys a dominant market position in Dubai’s power and water sectors, and a strong asset base with a 30.5% reserve margin in 2018,” Moody’s said.
The ratings agency expects DEWA’s liquidity to remain very strong over the next 12 to 18 months. Its Dh10.8 billion cash hoard as of mid-year would further be complemented by an expected Dh9.9 billion cash generation from operations over the next 12 months, Moody’s said.
“A stabilization of DEWA’s rating outlook would require an improvement in Dubai’s economic environment and a stabilization of the emirate’s debt burden. DEWA’s ratings could be downgraded in case of a deterioration in Dubai’s economic environment and debt burden,” the ratings agency said.
For DP World, Moody’s said an upgrade of the company was currently unlikely given the negative outlook.
“A stabilization of DP World’s rating outlook would require an improvement in Dubai’s economic environment and a stabilization of the emirate’s debt burden,” it said.
“Furthermore, the rating could be weakened if DP World exceeds its net leverage guidance or undertakes higher-risk development projects or perceived risker M&A activity,” Moody’s said in its closing comment.
