S&P Global Ratings has cut its credit ratings for two Dubai government-linked companies due to concerns over conditions in the emirate.
The ratings agency lowered utility Dubai Electricity and Water Authority (DEWA) by one level to two steps above junk (BBB) with a negative outlook due to concerns Dubai’s creditworthiness could worsen over the next two years, according to Bloomberg.
“This is because we assume that the government could use its power to intervene negatively, which could include burdening the company with additional dividends, taxes, or other liabilities,” S&P said.
Financial free zone property owner DIFC Investments was also cut to BBB- with a stable outlook.
“Credit conditions in Dubai have deteriorated, which we believe affects the government’s likely ability to provide extraordinary financial support to its government-related entities if needed,” the ratings agency added.
S&P cited factors including population growth that has outpaced economic expansion and income levels for the cuts.
Income levels in the form of gross domestic product per capita fell to $37,000 in Dubai this year from a $45,000 peak in 2013 and are likely to drop further to $36,000 in 2020, it said.
“We view this decline as an indicator of weakened macroeconomic fundamentals, as a country’s income level gives an indication of the potential tax and funding base for a government.”
IT consultancy IDC said in a mobile shipment report this week that there was speculation of a “secret recession” in Dubai, noting the closure of shops in the retail sector.
UAE smartphone shipments were down 10.9 per cent quarter-on-quarter in the April-June period, it indicated.
S&P previously forecast in a February report that it expected Dubai’s real estate slump, which saw prices and rents decline 5-10 per cent in 2017, to last at least another two years.
