The conundrum facing the three major ratings agencies - Fitch, Moody's and Standard & Poor's (S&P) - has always been that if they don't adjust their credit ratings for a borrower soon enough, they are blamed for anything that happens in the meantime.
If the borrower defaults and the agency's rating indicated that the likelihood was low, investors tend to blame the agency for not foreseeing problems.
This is obviously a shortcoming in the way investors and markets interpret ratings in the first place. A rating merely indicates the likelihood of a default. But an "AAA"-rated borrower can default, just as a C-rated borrower might not.
A credit rating is merely a measure of relative risk designed to help lenders decide how much they should charge borrowers to compensate them for taking that risk.
But more dangerous is that ratings are self-fulfilling: as soon as an agency lowers a borrower's rating to indicate a lower perception of creditworthiness, it lowers the borrowers actual creditworthiness, exacerbating whatever problems might have prompted the downgrade in the first place.
That is the puzzle facing ratings agencies in the UAE as they react to the decision by Dubai to renegotiate some of the debts at Dubai World, and its two property subsidiaries Nakheel and Limitless.
The decision has shattered an assumption that had supported ratings for government-owned companies: that if they ran into any trouble servicing their debts, the government would provide them with whatever cash they needed.
This assistance was known as an "implicit guarantee", like that which Fannie Mae and Freddie Mac enjoyed for years. Last year, when the subprime crisis hit, the US government made good on the assumption that they could rely on aid by bailing them out, saving a shattered housing market, the US financial system and its economy.
The ratings agencies came in for a lot of criticism in the crisis because many of the subprime mortgage-backed securities at the centre of the crisis had "AAA" ratings.
This criticism centred on the inherent conflict of interest between ratings agencies, which are paid by borrowers so investors have a better idea of how likely the borrower is to repay them.
The criticism was largely unjustified. As I mentioned, even "AAA"-rated borrowers can default, however unlikely that is.
The agencies are determined not to be caught out again and so are being especially conservative in their appraisals.
Dubai World is only the latest in a long-running reappraisal by the agencies of implicit guarantees in the UAE. It started in April, when S&P reacted with downgrades to a statement by Nakheel that when it came to finding the cash to pay off its US$3.5 billion (Dh12.85bn) Islamic bond, all options were on the table.
All options? The only option a credit-ratings agency wants to hear is that a borrower plans to pay off its debts. Alluding to any other option seemed to raise questions about the willingness or ability of Nakheel's owner, Dubai World, and its owner, the Dubai Government, to ensure Nakheel's solvency.
Moody's was the latest to begin questioning its assumptions on government backing.
In October, the prospectus for Dubai's new $6.5bn bond programme made it clear that government-owned firms could not necessarily count on funding from the Government's Financial Support Fund, prompting another series of downgrades from Moody's.
Last month's announcement has prompted all three agencies to move again, this time eliminating assumption that government-owned companies enjoy implicit guarantees.
Obviously, the Government could still move to back some companies, and not all companies would necessarily need any such bailout.
But the onus is now on the Government to do what the US government did with Fannie and Freddie: clear up which companies enjoy guarantees and which will have to stand on their own.
@Email:warnold@thenational.ae
How to report a beggar
Abu Dhabi – Call 999 or 8002626 (Aman Service)
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Ras Al Khaimah - Call 072053372
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Fujairah - Call 092051100 or 092224411
UAE currency: the story behind the money in your pockets
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Lexus LX700h specs
Engine: 3.4-litre twin-turbo V6 plus supplementary electric motor
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Monster Hunter: World
Capcom
PlayStation 4, Xbox One
Tell-tale signs of burnout
- loss of confidence and appetite
- irritability and emotional outbursts
- sadness
- persistent physical ailments such as headaches, frequent infections and fatigue
- substance abuse, such as smoking or drinking more
- impaired judgement
- excessive and continuous worrying
- irregular sleep patterns
Tips to help overcome burnout
Acknowledge how you are feeling by listening to your warning signs. Set boundaries and learn to say ‘no’
Do activities that you want to do as well as things you have to do
Undertake at least 30 minutes of exercise per day. It releases an abundance of feel-good hormones
Find your form of relaxation and make time for it each day e.g. soothing music, reading or mindful meditation
Sleep and wake at the same time every day, even if your sleep pattern was disrupted. Without enough sleep condition such as stress, anxiety and depression can thrive.
What went into the film
25 visual effects (VFX) studios
2,150 VFX shots in a film with 2,500 shots
1,000 VFX artists
3,000 technicians
10 Concept artists, 25 3D designers
New sound technology, named 4D SRL
Killing of Qassem Suleimani
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
How they line up for Sunday's Australian Grand Prix
1 Lewis Hamilton, Mercedes
2 Kimi Raikkonen, Ferrari
3 Sebastian Vettel, Ferrari
4 Max Verstappen, Red Bull
5 Kevin Magnussen, Haas
6 Romain Grosjean, Haas
7 Nico Hulkenberg, Renault
*8 Daniel Ricciardo, Red Bull
9 Carlos Sainz, Renault
10 Valtteri Bottas, Mercedes
11 Fernando Alonso, McLaren
12 Stoffel Vandoorne, McLaren
13 Sergio Perez, Force India
14 Lance Stroll, Williams
15 Esteban Ocon, Force India
16 Brendon Hartley, Toro Rosso
17 Marcus Ericsson, Sauber
18 Charles Leclerc, Sauber
19 Sergey Sirotkin, Williams
20 Pierre Gasly, Toro Rosso
* Daniel Ricciardo qualified fifth but had a three-place grid penalty for speeding in red flag conditions during practice
The biog
Family: He is the youngest of five brothers, of whom two are dentists.
Celebrities he worked on: Fabio Canavaro, Lojain Omran, RedOne, Saber Al Rabai.
Where he works: Liberty Dental Clinic
UAE currency: the story behind the money in your pockets
MATCH INFO
Uefa Champions League semi-finals, second leg:
Liverpool (0) v Barcelona (3), Tuesday, 11pm UAE
Game is on BeIN Sports
Off-roading in the UAE: How to checklist
The Kingfisher Secret
Anonymous, Penguin Books
Dhadak
Director: Shashank Khaitan
Starring: Janhvi Kapoor, Ishaan Khattar, Ashutosh Rana
Stars: 3
more from Janine di Giovanni
Liverpool’s fixtures until end of 2019
Saturday, November 30, Brighton (h)
Wednesday, December 4, Everton (h)
Saturday, December 7, Bournemouth (a)
Tuesday, December 10, Salzburg (a) CL
Saturday, December 14, Watford (h)
Tuesday, December 17, Aston Villa (a) League Cup
Wednesday, December 18, Club World Cup in Qatar
Saturday, December 21, Club World Cup in Qatar
Thursday, December 26, Leicester (a)
Sunday, December 29, Wolves (h)
Dubai works towards better air quality by 2021
Dubai is on a mission to record good air quality for 90 per cent of the year – up from 86 per cent annually today – by 2021.
The municipality plans to have seven mobile air-monitoring stations by 2020 to capture more accurate data in hourly and daily trends of pollution.
These will be on the Palm Jumeirah, Al Qusais, Muhaisnah, Rashidiyah, Al Wasl, Al Quoz and Dubai Investment Park.
“It will allow real-time responding for emergency cases,” said Khaldoon Al Daraji, first environment safety officer at the municipality.
“We’re in a good position except for the cases that are out of our hands, such as sandstorms.
“Sandstorms are our main concern because the UAE is just a receiver.
“The hotspots are Iran, Saudi Arabia and southern Iraq, but we’re working hard with the region to reduce the cycle of sandstorm generation.”
Mr Al Daraji said monitoring as it stood covered 47 per cent of Dubai.
There are 12 fixed stations in the emirate, but Dubai also receives information from monitors belonging to other entities.
“There are 25 stations in total,” Mr Al Daraji said.
“We added new technology and equipment used for the first time for the detection of heavy metals.
“A hundred parameters can be detected but we want to expand it to make sure that the data captured can allow a baseline study in some areas to ensure they are well positioned.”
Killing of Qassem Suleimani
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MATCH INFO
Borussia Dortmund 0
Bayern Munich 1 (Kimmich 43')
Man of the match: Joshua Kimmich (Bayern Munich)
