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S&P Puts Four Dubai Banks Under Creditwatch

DUBAI — Standard & Poor’s placed four Dubai-based banks on creditwatch late Thursday, shortly after cutting the debt ratings for several Dubai government-owned and related companies, saying the restructuring of Dubai World raises financing concerns for the banks due to their high exposure to the conglomerate.

The credit rating agency put on creditwatch, the ‘A-’ long-term rating on Emirates Bank International PJSC, National Bank of Dubai, and Mashreqbank, as well as the ‘BBB+/A-2’ ratings on Dubai Islamic Bank. It affirmed the the ‘A-2’ short-term ratings on Emirates Bank International, National Bank of Dubai, 
and Mashreqbank.

A creditwatch by credit rating agencies and financial institutions involves monitoring credit report for any credit related changes, and allows individuals to act on any red flags before they can have a detrimental effect on 
credit score.

Dubai World’s surprise action last Wednesday, continued to roil financial markets, as world stocks declined, while oil and other commodities fell on Friday, on concerns that the fallout in Dubai would set back global efforts to climb out of recession.

“The rating actions reflect the large exposure these banks have to Dubai World and Nakheel, and more generally to Dubai-based government related entities, and the risks that the standstill agreement would pose to these banks,” S&P credit analyst Mohamed Damak, said in a statement.

“This comes at a time when the deteriorated economic environment, including the fall of real estate prices, has already started to weigh on the financial profile of these banks,” 
said Damak. S&P said the four banks’ asset quality indicators have declined over the past 12 months.

“We expect asset quality to continue to deteriorate in the coming quarters and this trend could be exacerbated by the direct and indirect impact of a debt restructuring by Dubai World. Asset quality indicators are also expected to worsen as some of these banks have exposure to Ahmad Hamad Al Gossaibi Brothers and Saad Group, which defaulted on their obligations earlier in 2009, “ said Damak.

S&P said it will resolve in three months, the creditwatch on these four banks upon reviewing the full details and impact of the Dubai World and Nakheel 
restructuring.

S&P earlier cut its debt ratings for several Dubai government-owned and related companies, including DIFC Investments, Dubai Holding Commercial Operations Group and Emaar Properties, as well as DP World and Jebel Ali Free Zone (Jafza) after Dubai World, saddled with $59 billion in debts, on Wednesday asked its creditors to accept a delay in all repayments until the end of May, 2010.

DP World and Jafza are not included in the Dubai World restructuring. In a related development, Abu Dhabi Commercial Bank was reported by Reuters as having at least Dh8 billion to Dh9 billion exposure to Dubai World and related entities that will require the bank to book more provisions.

“We have to face the stress that will be caused to our balance sheet and profit and loss account,” Reuters quoted a senior executive of the bank who declined to be named.

Another executive of the Abu Dhabi-based bank, First Gulf Bank, was also quoted in the Reuters report as saying the bank has exposure to Dubai World amounting to about Dh5 billion.

· rocel@khaleejtimes.com