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December 9, 2009

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Moody's downgrades 6 Dubai firms

A LEADING credit rating firm further cut its ratings yesterday on six Dubai state-linked companies because it says it cannot assume the government will stand behind their debts.

The downgrades by Moody's Investors Service come as the city-state seeks to distance itself from at least US$80 billion of loans - and perhaps far more - racked up by companies it created in recent years to expand Dubai's global clout.

Lenders up until two weeks ago had assumed Dubai's many state-linked companies had implicit government backing. Dubai officials have since made clear no such promise exists.

"We've taken the message on board," said Philipp Lotter, Moody's senior vice president. "The consequences of this precedent have become very clear in Dubai. Companies are now viewed on a very much stand-alone basis."

While Dubai does not guarantee its companies' debts, it has chosen to provide some help to those it sees as central to the sheikdom's success.

Dubai's top finance official, Abdul Rahman al-Saleh, told Saudi-owned satellite channel al-Arabiya yesterday that the government has previously given state-owned property developer Nakheel US$2.45 billion to pay its bills. He did not say when the funds were pumped into the struggling company.

"The government is present to provide backing as an owner. ... We would like to emphasize the distinction between guaranteeing (debts) and backing. The company (has received) large backing from the government since its inception," al-Saleh said.

Nakheel, builder of Dubai's iconic palm-shaped islands, is a key focus of Dubai's debt problems because some US$3.5 billion worth of its Islamic bonds came due on Monday. The company's ability to repay the loans has become seen as a test of Dubai's overall creditworthiness.

The finance chief also told Al-Arabiya that it would take more than six months to restructure state-run conglomerate Dubai World, the parent of Nakheel and numerous other companies.

The company is now in talks with creditors to negotiate a six-month "standstill" of its debt obligations - effectively a half-year repayment grace period.


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