Tensions arise from ratings downgrades

At least 10 companies in the Gulf have severed ties with credit ratings agencies in the past year, highlighting tensions arising from a series of downgrades and revised assumptions of government support. Disputes between companies and the agencies that rate them have only intensified following Dubai World's announcement in November that it would seek a standstill agreement on US$26 billion (Dh95.49bn) of debt, analysts say.

A central catalyst of the disputes has been a change in how the agencies, which gauge the risk of default on loans, bonds and other financial obligations, treat government-owned companies. All three big ratings agencies - Standard & Poor's, Fitch Ratings and Moody's Investors Service - have recently pulled back on assumptions of government support. That in turn has caused a raft of downgrades and disputes as the agencies evaluate companies increasingly on an independent basis. Many companies owned by the Dubai Government, including Emirates NBD, DP World, Dubai Electricity and Water Authority, Jebel Ali Free Zone, Emaar Properties and DIFC Investments, have recently been downgraded. Some in Abu Dhabi, such as Aldar and Abu Dhabi Commercial Bank, have also been downgraded, while others have been put on watch for a possible downgrade.

"Moody's ratings in the UAE have incorporated substantial uplift for implicit support from the Government, to the extent that some companies' creditworthiness was viewed as equal to that of the sovereign," the agency said last month. "Recent events in Dubai, however, highlighted the difficulty of interpreting government intentions, particularly in generally opaque environments." As the agencies look at companies' finances in this new light and demand more detailed financial information from them, some companies are pushing back.

Dubai Holding Commercial Operations Group (DHCOG), a division of Dubai Holding, accused S&P of making "inaccurate statements coupled with factual errors that are misleading" after the agency last month lowered its ratings of DHCOG and then withdrew them, complaining that the government-owned company had provided an "inadequate timeliness and level of financial information". A similar dispute arose last month between S&P and Emirates NBD, the country's largest bank, after the lender said it would no longer be rated by S&P. And the Abu Dhabi National Energy Company, known as Taqa and owned by the Abu Dhabi Government, terminated S&P's ratings following an earlier revision of the criteria it uses to evaluate government firms.

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