DHCOG debt instruments downgraded by Moody's

In the wake of Dubai Holdings Commercial Operations Group reaching agreement to restructure a $555 million revolving credit facility Moody's Investor Services, the ratings agency, has downgraded $2.14 billion of debt instruments issued by the company.

Moody's Investors Services, the ratings agency, has downgraded US$2.14 billion (Dh7.86bn) of debt instruments issued by Dubai Holding Commercial Operations Group (DHCOG).

DHCOG, which has property, hotel and free zone businesses in the emirate, is part of Dubai Holdings, the conglomerate owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai. It includes the Dubai Property development business, as well as Jumeirah hotel and leisure operations and TECOM business parks.

The downgrade affects DHCOG's medium-term note (MTN) facility, with the rating reduced from "B2" to "B3". Moody's probability of default rating (PDR) is left unchanged at "B3", but the agency is maintaining its review for possible downgrade of the PDR, as well as the overall corporate family rating (CFR) and further downgrade of the MTN. Last week, DHCOG announced it had reached agreement with its principal bankers to restructure a $555 million revolving credit facility, which will now be repayable over a five-year period on commercial terms.

"Despite the limited information so far regarding the new terms, Moody's believes the banks may now be in a preferential position vis-à-vis bondholders. We have reflected this by downgrading the debt instruments ratings to 'B3'," said Martin Kohlhase, Moody's assistant vice president analyst in the Middle East.

He added that the decision to continue the PDR at "B3" "indicated the continued high default risk until the capital market debt is refinanced over the next 14 months. DHCOG has to repay $240m in July and a further $500m in February next year.

"We normally do not respond to actions by the ratings agencies," said a spokeswoman for DHCOG. However, a source close to the company said Moody's had "rushed into a decision" on the downgrade, and should have waited for more information.

"The bondholders' situation has changed since last week, when the $555m deal was announced. They are in a weaker position. We had to act on that information," said Mr Kohlhase.

Moody's ratings review of DHCOG will conclude by the end of this month. "We will continue to hold discussions with DHCOG's management about the company's outlook, the business plan and the refinancing risks," the agency said.

"While some recent macro-economic and trade data represent evidence of a recovery in DHCOG's core recurring business activities, the Dubai property market remains hampered by over-capacities, where DHCOG plays a dominant role as one of the largest master developers."