Moody’s affirms DEWA and DP World ratings, but revises outlook for Dubai-owned firms

DEWA’s credit position has continuously improved since 2011 on a supportive tariff structure and disciplined capital spending. (AFP)
Updated 30 November 2019

Moody’s affirms DEWA and DP World ratings, but revises outlook for Dubai-owned 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

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.


Mexico objects to labor enforcement provision in North American trade deal

Updated 15 December 2019

Mexico objects to labor enforcement provision in North American trade deal

  • Mexico produced more stringent rules on labor rights aimed at reducing Mexico’s low-wage advantage
  • US House of Representatives proposes the designation of up to five US experts who would monitor compliance with local labor reform in Mexico

MEXICO CITY: Mexico’s deputy foreign minister, Jesus Seade, said on Saturday he sent a letter to the top US trade official expressing surprise and concern over a labor enforcement provision proposed by a US congressional committee in the new North American trade deal.
Top officials from Canada, Mexico and the United States on Tuesday signed a fresh overhaul of a quarter-century-old deal, aiming to improve enforcement of worker rights and hold down prices for biologic drugs by eliminating a patent provision.
How labor disputes are handled in the new United States-Mexico-Canada Agreement (USMCA) trade deal was one of the last sticking points in the negotiations between the three countries to overhaul the agreement.
Intense negotiations over the past week among US Democrats, the administration of Republican US President Donald Trump, and Mexico produced more stringent rules on labor rights aimed at reducing Mexico’s low-wage advantage.
However, an annex for the implementation of the treaty that was presented on Friday in the US House of Representatives proposes the designation of up to five US experts who would monitor compliance with local labor reform in Mexico.
“This provision, the result of political decisions by Congress and the Administration in the United States, was not, for obvious reasons, consulted with Mexico,” Seade wrote in the letter. “And, of course, we disagree.”
USMCA was signed more than a year ago to replace the North American Free Trade Agreement (NAFTA), but Democrats controlling the US House of Representatives insisted on major changes to labor and environmental enforcement before voting.
The letter, released on Saturday, is dated Friday and addressed to US Trade Representative Robert Lighthizer. Seade said he would travel to Washington on Sunday to raise the issues directly with Lighthizer and lawmakers.
“Unlike the rest of the provisions that are clearly within the internal scope of the United States, the provision referred to does have effects with respect to our country and therefore, should have been consulted,” Seade wrote.
Both Canada and the US House Ways and Means Committee said the deal included a mechanism for verification of compliance with union rights at the factory level in Mexico by independent labor experts.
Some Mexican business groups bemoaned a lack of clarity and conflicting information on how the rules would actually be enforced under the deal, the first text of which became public only on Wednesday.