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Moody's cuts DP World rating, sees growing link to Dubai's credit quality

DUBAI, April 30 (Reuters) - Rating agency Moody’s on Thursday downgraded the credit rating of Dubai port operator DP World by two notches to Baa3, the lowest investment grade because of rising debt.

Many investors view the ratings of government-related entities in Dubai, such as DP World, as an indicator of the government’s own credit profile. Dubai, in the United Arab Emirates, is not rated by any of the major agencies.

Moody’s, which has already cut the rating of state utility Dubai Electricity & Water Authority (DEWA), said there was a growing link between the credit rating of DP World and Dubai.

Dubai is borrowing $9 billion to take full control of the port operator DP World and to refinance the debt of state investment vehicle Dubai World, which was at the centre of the emirate’s 2009 debt crisis.

Moody’s said the borrowing reflected “negative interference from the Dubai government” which was effectively leveraging DP World’s balance sheet to repay debt of Dubai World.

The outlook for DP World’s rating was stable.

“The two notches downgrade to Baa3 reflects a material increase in net debt of around $8 billion which will lead to a significant deterioration in DP World’s credit metrics,” the rating agency said. “This creates growing linkages between the credit quality of DP World and that of the Emirate of Dubai.”

Moody’s expects the coronavirus crisis will aggravate the structural economic slowdown in Dubai, contributing to the further deterioration in its fiscal strength as debts climb.

Dubai is in the early stages of talks with banks about potential funding options as its economy struggles from the virus fallout, sources have told Reuters.

DP World recently said the timing of a recovery in trade from the coronavirus crisis was uncertain.

$1 = 3.6730 UAE dirham Reporting by Saeed Azhar; Editing by Edmund Blair

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