[ForexNews]

Following the government of Dubai's announcement yesterday of its intention to restructure Dubai World, S&P and Moody's have downgraded a number of Dubai Inc. credits. The downgrades affect DP World, JAFZ, DEWA, DIFC Investments, Dubai Holding COG, and Emaar Properties. Their ratings have been downgraded by between two and four notches and are on review for further downgrade by both Moody's and S&P. DIFC Investments is the worst affected, with its ratings cut four notches by both agencies, reflecting a move closer to its fundamental credit profile. Moody’s and S&P have both reiterated the importance of the treatment of Nakheel's upcoming debt redemptions to their assessment of the government's willingness to support its entities. The rating agencies also suggest that a restructuring could be considered equivalent to a default under their criteria and would imply a failure of the Dubai government to provide timely financial support to a core government-related entity. While Moody's confirms that no cross-default provisions exist between Dubai World and its subsidiaries DP World and JAFZ, the downgrade of these companies reflects the uncertainty created by the restructuring of the parent company and the change in assumptions of parent support. Although all Dubai Inc. credits rated by S&P remain in the investment-grade category, following this rating action, most of Moody’s ratings for these companies are now non-investment grade (with the exceptions of DP World and DEWA). A high degree of ambiguity persists regarding the details of the restructuring announced yesterday. In the event of a default on the Nakheel 2009s, further downgrades are expected as the ratings boost provided by the assumption of sovereign support disappears.