Moody’s said the wave of downgrades seen during the peak of the financial crisis in the Gulf markets has abated even though moderate pressure is likely in 2011.
“The risk of downgrades remains highest for lower-rated issuers, typically in the non-investment-grade spectrum, due to their need to refinance upcoming debt maturities and in some cases continue restructuring their real estate exposures,” David Staples, Moody’s managing director for corporate finance for the Gulf, said in a report on Monday.
A wave of political change sweeping the Arab world has hit financial markets and has threatened the long-term investment prospects of the region. However, some analysts say post-revolutionary states such as Tunisia will likely lower protectionist barriers and boost investments.
The ratings agency warned any changes in government support or in the stability of the economic environment can have a major impact for government-related institutions.
“In this respect, Moody’s believes that the Dubai-based government-owned companies collectively known as “Dubai Inc.” remain a key area of focus,” it said.
Concerns about Dubai’s debt of around $115 billion have eased since the state-owned group Dubai World reached a deal last September to restructure almost $25 billion of debt. But questions remain whether the emirate will be able repay some $30 billion of debt over the next two years, mainly at state-owned companies.
The ratings agency sees minimal impact in the oil-rich emirate of Abu Dhabi from the political crisis. Oil prices have soared since the outbreak of the Middle East crisis on worries violent unrest in countries like Libya may hurt supplies.
“The turmoil helps Abu Dhabi. They are going to get more revenues this year than they would expect when they budgeted last fall,” Staples said in a separate interview in Dubai.
The ratings agency said state-owned companies in Abu Dhabi are likely to see continued support from the government. It highlighted the recent bailout of struggling real-estate developer Aldar Properties and district cooling firm Tabreed.
“Moody’s Investors Service considers support by Abu Dhabi for its strategic state-owned companies as being highly probable,” Moody’s analyst Martin Kohlhase said in a separate report.
Moody’s said Abu Dhabi support for the private sector and efforts to diversify its economy have been channeled through its investment vehicles Mubadala and International Petroleum Investment Co. (IPIC).
“The important message is that the government does regularly fund both companies through budget contributions, particularly for infrastructure projects,” Staples said.
Asked whether the two investment vehicles would continue to see more funding from Abu Dhabi government, Staples said, “Yes. Absolutely.” The executive, however, did not give exact figures of expected funding.
Abu Dhabi stepped in with $5.2 billion of support for struggling developer Aldar Properties, including buying some of its key assets and subscribing to a bond sale in January.
Tabreed secured an extra 3.1 billion dirhams ($844.2 million) lifeline from state-owned fund Mubadala, helping the firm to tackle its massive debt pile.
“Tabreed’s recapitalization by Mubadala amounted, in Moody’s view, to a rescue,” the report said.
Last month, IPIC bought the remaining half of Spanish oil company Cepsa for 3.7 billion euros ($5 billion) from France’s Total.
