The announcement last month that Dubai World would seek to restructure US$26 billion (Dh95.45bn) in debt threw investors and analysts into a tizzy. Yet perhaps most significant among the hand-wringers in the uncertain weeks leading up to Abu Dhabi's $10bn aid package for the government-owned Dubai World last week were the credit ratings agencies.
Those firms, which have rightly come under fire for giving their best marks to the exotic securities that touched off the global financial crisis, showed their fickle stripes following the Dubai World debt standstill announcement.
All the majors - Fitch Ratings, Standard & Poor's (S&P) and Moody's Investors Service - downgraded Dubai Government-related companies. S&P was first to act, cutting DP World, Dubai Holding Commercial Operations Group (DHCOG), the Jebel Ali Free Zone Authority, Emaar and DIFC Investments on the day of the standstill announcement.
S&P downgraded the Jebel Ali port and DP World before Dubai had time to announce that those two firms, both owned by Dubai World, would not be part of the restructuring. That did not seem to matter, as S&P cut all of the government-owned firms it rates in Dubai.
Then came Fitch Ratings on November 26, the day after the S&P moves, with a downgrade of DHCOG, a property and hospitality subsidiary of Dubai Holding, and the Dubai Electricity and Water Authority (DEWA). Moody's chimed in as well, relegating DP World, Jebel Ali, DIFC Investments, Emaar, DHCOG and DEWA to junk status.
A few days later came more reduced ratings and negative outlooks. Among the victims were Dubai Bank, Tamweel, TAIB Bank, Commercial Bank of Dubai, Emirates NBD, Mashreqbank, HSBC Middle East, the Hamriyah Free Zone Authority in Sharjah and Dubai Islamic Bank.
The carnage was in some ways understandable. Abdulrahman al Saleh, the head of the Dubai Financial Support Fund, said in the days after the standstill that Dubai World was not a direct liability of the Government in the same way that, say, the Department of Finance was.
This destroyed an assumption the ratings firms had long been making: that if any of Dubai's three big government conglomerates - Dubai World, Dubai Holding and Investment Corporation of Dubai - ever ran into trouble, a rescue would be in the offing.
It was an assumption not based on evidence let alone a firm legal promise.
In fact, the prospectuses for bonds issued by Dubai World and its subsidiaries made it crystal clear that they were not part of the Government and that investors should not expect assistance.
When Mr al Saleh said Dubai World was not technically the Government, he was repeating what investors should have known long ago, presuming that they had bothered to do their research. In the end, then, the agencies did the right thing when they removed their presumption of support after the standstill, causing ratings at several UAE firms to take a hit.
There had never been an explicit guarantee made except in the case of the Investment Corporation of Dubai, which is considered a direct liability of the Government.
The bigger problem that the uncertainty in Dubai helped expose, though, was that ratings agencies tend to be reactive rather than predictive. The major houses are effectively rating the current risk of default, not the future risk of default.
While knowing current risks is far from useless, it does not address what investors need most: a sense of how likely it is that the company they are putting their cash into will be unable to pay its debts in the long run.
"There will be continuing concern about the debt ratings and so forth, but the great thing about these credit rating agencies is they look through the rear-view mirror," Mark Mobius, one of the world's best-known emerging markets investors, said last week.
"Now they downgrade. Thank you very much, but why didn't you tell me before?"
Something clearly needs to change about the ratings agencies. It would be foolhardy to argue that they should be made extinct because they can and do perform a useful service.
Some have suggested that they be untethered from the issuers that pay them.
That would be smart. If borrowers were not paying the agencies to rate their own debt, the agencies would have an added measure of independence. At the same time, investors would have to pay the ratings firms, which would present a significant logistical hurdle.
Whatever difficulties it might present, solving the ratings riddle is important. What the agencies say exerts a real and long-term influence on the interest rates Dubai and its government companies pay when they raise money.
@Email:afitch@thenational.ae
360Vuz PROFILE
Date started: January 2017
Founder: Khaled Zaatarah
Based: Dubai and Los Angeles
Sector: Technology
Size: 21 employees
Funding: $7 million
Investors: Shorooq Partners, KBW Ventures, Vision Ventures, Hala Ventures, 500Startups, Plug and Play, Magnus Olsson, Samih Toukan, Jonathan Labin
The specs
Engine: 5.0-litre V8
Power: 480hp at 7,250rpm
Torque: 566Nm at 4,600rpm
Transmission: 10-speed auto
Fuel consumption: L/100km
Price: Dh306,495
On sale: now
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
The specs
Engine: Dual 180kW and 300kW front and rear motors
Power: 480kW
Torque: 850Nm
Transmission: Single-speed automatic
Price: From Dh359,900 ($98,000)
On sale: Now
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
Tips for avoiding trouble online
- Do not post incorrect information and beware of fake news
- Do not publish or repost racist or hate speech, yours or anyone else’s
- Do not incite violence and be careful how to phrase what you want to say
- Do not defame anyone. Have a difference of opinion with someone? Don’t attack them on social media
- Do not forget your children and monitor their online activities
PROFILE OF HALAN
Started: November 2017
Founders: Mounir Nakhla, Ahmed Mohsen and Mohamed Aboulnaga
Based: Cairo, Egypt
Sector: transport and logistics
Size: 150 employees
Investment: approximately $8 million
Investors include: Singapore’s Battery Road Digital Holdings, Egypt’s Algebra Ventures, Uber co-founder and former CTO Oscar Salazar
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
What is graphene?
Graphene is extracted from graphite and is made up of pure carbon.
It is 200 times more resistant than steel and five times lighter than aluminum.
It conducts electricity better than any other material at room temperature.
It is thought that graphene could boost the useful life of batteries by 10 per cent.
Graphene can also detect cancer cells in the early stages of the disease.
The material was first discovered when Andre Geim and Konstantin Novoselov were 'playing' with graphite at the University of Manchester in 2004.
The smuggler
Eldarir had arrived at JFK in January 2020 with three suitcases, containing goods he valued at $300, when he was directed to a search area.
Officers found 41 gold artefacts among the bags, including amulets from a funerary set which prepared the deceased for the afterlife.
Also found was a cartouche of a Ptolemaic king on a relief that was originally part of a royal building or temple.
The largest single group of items found in Eldarir’s cases were 400 shabtis, or figurines.
Khouli conviction
Khouli smuggled items into the US by making false declarations to customs about the country of origin and value of the items.
According to Immigration and Customs Enforcement, he provided “false provenances which stated that [two] Egyptian antiquities were part of a collection assembled by Khouli's father in Israel in the 1960s” when in fact “Khouli acquired the Egyptian antiquities from other dealers”.
He was sentenced to one year of probation, six months of home confinement and 200 hours of community service in 2012 after admitting buying and smuggling Egyptian antiquities, including coffins, funerary boats and limestone figures.
For sale
A number of other items said to come from the collection of Ezeldeen Taha Eldarir are currently or recently for sale.
Their provenance is described in near identical terms as the British Museum shabti: bought from Salahaddin Sirmali, "authenticated and appraised" by Hossen Rashed, then imported to the US in 1948.
- An Egyptian Mummy mask dating from 700BC-30BC, is on offer for £11,807 ($15,275) online by a seller in Mexico
- A coffin lid dating back to 664BC-332BC was offered for sale by a Colorado-based art dealer, with a starting price of $65,000
- A shabti that was on sale through a Chicago-based coin dealer, dating from 1567BC-1085BC, is up for $1,950