July 15, 2020 / 11:00 AM / a month ago

MIDEAST DEBT-Real estate giant's downgrade may increase Dubai financing cost

DUBAI, July 15 (Reuters) - A downgrade last week of Dubai's flagship real estate company will likely push up the emirate's borrowing costs if it decides to refinance $750 million in bonds due in October, bankers and analysts said.

The credit ratings of government-related entities are often seen by investors as a proxy for Dubai, which is not rated by any of the major ratings agencies.

S&P Global Ratings downgraded Emaar Properties, builder of the world's tallest building, Dubai's Burj Khalifa, to a BB+ "junk" rating from an investment grade BBB- score, saying it expected a 30%-40% slump in the firm's earnings this year.

Emaar Malls and DIFC Investments, a unit of the company running Dubai International Financial Centre, the Middle East's major finance hub, also saw the same rating actions.

"Emaar has exposure to two of the biggest sectors of the economy, retail and real estate, and naturally that would affect Dubai's credit profile," said Khalid Howladar, head of credit and sukuk advisory at RJ Fleming.

The Emaar rating action could possibly translate into some 25 basis points in extra cost for Dubai, if it decides to refinance its upcoming bonds, a fixed income analyst and fund manager said.

Dubai's department of finance declined to comment.

The coronavirus crisis has brought to a near standstill vital sectors of the Middle East business and tourism hub.

S&P said last week it expected Dubai's economy to shrink 11% this year, in what would be its largest economic contraction since 1986, according to Refinitiv data.

Sources have previously told Reuters Dubai was looking at a number of funding options to weather the crisis this year, including a potential public bond issuance.

Emaar's existing $750 million sukuk, or Islamic bonds, due in 2026, have lost some value following the downgrade, shedding over 20 basis points, according to Refinitiv data. ($1 = 3.6728 UAE dirham) (Editing by Davide Barbuscia; Editing by Toby Chopra)

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