DIFC Investments has changed its outlook to negative from stable by international ratings agency Standard & Poor’s (S&P) as it embarks on a $1bn-plus restructuring plan.
A negative outlook is generally considered to be the first step towards a rating downgrade.
The company plans to raise more than $1bn by selling non-core assets by the end of 2011.
In a statement published on 9 August, S&P noted: “Although we view this (restructuring) as a positive step with respect to DIFC Investments’ creditworthiness, we think it involves execution risk.”
The rating also reflects DIFC Investments’ “less than adequate” money based on its bank balance of $288m as of 5 August, its estimated $3.1bn of debt, its weak earnings, as well as non-core investments in companies and private equity funds that generate little or no dividends.
The company posted a $561.4m loss in 2009 compared to a $842.5m profit in 2008 due to asset write-downs, largely related to properties after Dubai’s real estate market saw prices plummet by up to 50 per cent.
Fellow international ratings agency Moody’s also lowered its rating on DIFC Investments in July, saying the probability of default was higher due to ongoing concerns about Dubai’s debt woes, most notably the $23.5bn restructuring of state-owned Dubai World.
DIFC Investments is a wholly owned subsidiary of Dubai International Financial Authority and encompasses the commercial activities of Dubai’s financial free zone, the Dubai International Financial Centre (DIFC).