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.


European bank ramps up stimulus package

Updated 05 June 2020

European bank ramps up stimulus package

FRANKFURT: The European Central Bank approved a bigger-than-expected expansion of its stimulus package on Thursday to prop up an economy plunged by the coronavirus pandemic into its worst recession since World War II.

Just months after a first raft of crisis measures, the ECB said it would raise bond purchases by €600 billion ($674 billion) to €1.35 trillion and that purchases would run at least until end-June 2021, six months longer than first planned.

It also said it would reinvest proceeds from maturing bonds in its pandemic emergency purchase scheme at least until the end of 2022.

ECB President Christine Lagarde scotched speculation that the bank could follow the US Federal Reserve in buying sub-investment grade bonds, saying that option was not discussed by policymakers.

The announcement, which comes just weeks after Germany’s Constitutional Court ruled that the ECB had already been exceeding its mandate with a longstanding asset purchase program, prompted a rally in the euro and bond markets.

“Today’s easing measures were another illustration that the ECB means business and stands ready to do whatever is necessary to help the euro area survive the corona crisis in one piece. The ECB will do its part, and it hopes the governments will do their part,” Nordea analysts said in a note.

The bank dramatically revised downward its baseline scenario for euro zone output this year to a contraction of 8.7 percent from the modest 0.8 percent rise it had forecast only in March.

“The euro area economy is experiencing an unprecedented contraction. There has been an abrupt drop in economic activity as a result of the coronavirus pandemic and the measures taken to contain it,” Lagarde said.

She said she was confident that a “good solution” could be found on the legal stand-off with Germany’s top court.