April 29, 2020 / 1:41 PM / 25 days ago

Moody's downgrades Dubai utility DEWA to Baa2, outlook still negative

DUBAI, April 29 (Reuters) - Moody’s on Wednesday downgraded the rating of Dubai Electricity & Water Authority (DEWA), the state-owned monopoly provider of electricity and water in Dubai, to Baa2 from Baa1 and maintained a negative outlook.

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

“Moody’s expects the coronavirus outbreak will aggravate the structural slowdown in real GDP growth for the Emirate of Dubai, contributing to the further deterioration of fiscal strength of the government via increasing debt levels,” the rating agency said in a report.

“The downgrade also reflects the risk of sustained large dividend transfers from DEWA to the government of Dubai as a result of the deteriorating economic and fiscal health of the emirate.”

Moody’s said DEWA’s financial policies and governance ultimately being controlled by the government of Dubai could materially affect its credit profile.

DEWA paid the Dubai government 4.5 billion dirhams ($1.23 billion) in dividends last year versus 1 billion dirhams in 2018, Moody’s said.

Despite the downgrade and negative outlook, Moody’s said DEWA benefited from strong business and financial profiles and expected the company to generate 8.5 billion dirhams of cash from operations over the next year.

Coupled with 11.8 billion dirhams in cash and cash equivalents as of end-2019, Moody’s said DEWA will have sufficient cash to cover 6.2 billion dirhams of debt maturities, around 2 billion dirhams of capital spending, and an estimated 3 billion dirhams in dividends.

“Moody’s views DEWA as a government-related issuer whose credit profile is tied to the economic and fiscal developments in the emirate of Dubai,” the agency said.

$1 = 3.6730 UAE dirham Reporting by Yousef Saba; Editing by Kirsten Donovan

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