In the latest blow to the global capital and commercial markets, Moody’s Investors Service today downgraded all six Dubai government-related issuers. At this point Dubai’s woes are well documented, even though financials anticipated the nonpayment of Dubai World, or at least related entities, for quite some time. Nonetheless, experts interviewed for this piece by HousingWire indicate that troubles in the Emirate are expanding to the shores of Western banking. “The recent events in Dubai mean that the cost of capital in commercial real estate just went up, not just the cost of commercial restructuring,” states James Frischling, CEO NewOak Capital on Dubai developments. “This shows a kink in the armor for many holders of commercial real estate who have adopted the “extend” strategy as a way of managing through the crisis. He adds: “In my opinion, while CMBS had witnessed significant spread tightening, the events in Dubai will put a spotlight on the risks in that sector and will cool that rally down a bit.” The Dubai government, Dubai World’s principal owner, asked creditors two weeks ago to delay repayments for at least six months while it restructures more than $60bn in debt, including billions from its real estate firm Nakheel. In the statement on the decision, Moody’s analysts say: “This rating action follows recent comments and statements from government officials, which cause us to believe that no meaningful government support should be assumed for any entity that is not directly part of or formally guaranteed by the government.” Dubai’s future, by some accounts, seems wrapped up in a bailout from the United Arab Emirates Central Bank in nearby, oil-rich Abu Dhabi, which is probably now re-thinking its own massive cityscape project Abu Dhabi 2030. The Moody’s development is also particulary interesting considering its report less than six months ago on the proposed merger of Emaar Properties and Dubai Holding Commercial Operations Group (DHCOG) into an all-powerful property monolith in the Emirate. In that article, Martin Kohlhase, an associate analyst in Moody’s Corporate Finance Group based in Dubai, said: “Larger government ownership in Emaar may not be sufficient to mitigate the detrimental impact that the merger would have on the company’s fundamental creditworthiness. Furthermore, ongoing market weakness and the prospects of weaker cash flow over the near to medium term will impact the combined group going forward.” Today, the credit rating agency added “the review of DHCOG and Emaar reflects prospects for a prolonged real estate market slump, as well as the evolving nature of both entities as a result of their pending merger.” In a conversation with Khalid Howladar, vice president Middle Eastern & Islamic Finance at Moody’s, around one year ago, he mentioned that the financial structure of Dubai had yet to be tested. That certainly isn’t the case any longer. Write to Jacob Gaffney.

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