- The negative outlook on DEWA and DP World reflects the ratings agency鈥檚 expectation of a drawn-out slowdown in the non-oil sectors of the UAE economy
DUBAI: Ratings firm has 惭辞辞诲测鈥檚 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.
鈥淭he rating action reflects the credit linkages between [the companies] and the government of Dubai. 惭辞辞诲测鈥檚 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,鈥� 惭辞辞诲测鈥檚 commented in its separate ratings action on the Dubai firms.
The negative outlook on DEWA and DP World reflects the ratings agency鈥檚 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.
鈥淭ogether with a limited pipeline of new revenue-raising measures and a counter-cyclical fiscal policy stance, increase the risk that the government鈥檚 debt burden will continue to rise,鈥� it noted.
鈥淕iven DEWA鈥檚 sole operational exposure to Dubai and its full ownership by the government of Dubai, 惭辞辞诲测鈥檚 considers that DEWA鈥檚 credit profile is tied to the economic and fiscal developments of the emirate.鈥�
惭辞辞诲测鈥檚 also explained that considering DP World鈥檚 material operational concentration in Dubai and the high government ownership, the global port operator鈥檚 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鈥檚 reported gross debt has increased to $11.6 billion as of June 30, from $7.7 billion as of 31 December 2017.
DEWA鈥檚 credit position meanwhile has continuously improved since 2011 as a supportive tariff structure and disciplined capital spending have yielded strong free cash flow generation.
鈥淒EWA enjoys a dominant market position in Dubai鈥檚 power and water sectors, and a strong asset base with a 30.5% reserve margin in 2018,鈥� 惭辞辞诲测鈥檚 said.
The ratings agency expects DEWA鈥檚 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, 惭辞辞诲测鈥檚 said.
鈥淎 stabilization of DEWA鈥檚 rating outlook would require an improvement in Dubai鈥檚 economic environment and a stabilization of the emirate鈥檚 debt burden. DEWA鈥檚 ratings could be downgraded in case of a deterioration in Dubai鈥檚 economic environment and debt burden,鈥� the ratings agency said.
For DP World, 惭辞辞诲测鈥檚 said an upgrade of the company was currently unlikely given the negative outlook.
鈥淎 stabilization of DP World鈥檚 rating outlook would require an improvement in Dubai鈥檚 economic environment and a stabilization of the emirate鈥檚 debt burden,鈥� it said.
鈥淔urthermore, 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,鈥� 惭辞辞诲测鈥檚 said in its closing comment.