Thursday, December 10, 2009

Calling Bullshit on Jim Cramer

On one hand you have Jim Cramer, saying "As painful as it might seem to those who wanted to use Dubai as still one more pillar to the bear edifice, the story just doesn't have legs. It was sexy -- Middle Eastern bubble blown up. It has global intrigue. Will the UAE bail them out? Will fundamentalist politics play a role? The sizzle, though, didn't have a lot of steak to it. Another borrower blows up; yawn. Another bad loan by RBS; those guys should have been nationalized. Another black hole that Citigroup walked into. But that's about it. "

On the other hand you have Moody's set to destroy Dubai's rating, even as Nakheel bonds take out all time bottoms, and as Dubai CDS surging once again to 605bps, 58 wider from yesterday. Just released note from Moody's pointing out it is about to kneecap Dubai government-related issuers.

DIFC, December 09, 2009 -- Moody's Investors Service has placed the ratings of government-related issuers (GRIs) in the UAE on review for possible downgrade. This includes all GRI's that are owned by either the federal UAE government, or the government of Abu Dhabi. The review was prompted by a need to re-validate, and possibly reconsider our support assumptions following Dubai's recent decision to explicitly segregate its direct obligations from those of its GRIs, following which a decision was subsequently made to pursue a debt restructuring at Dubai World.

The ratings under review currently benefit from very high implicit government support assumptions and assume that even in most potential stress scenarios the government will not make a distinction between servicing its direct obligations and those of its state-owned companies.

Issuers whose ratings were placed on review for downgrade include the following:

- Abu Dhabi National Energy Company (TAQA) issuer and debt ratings: Aa2 / on review for downgrade. The Prime-1 short term ratings were affirmed.

- Mubadala Development Company (Mubadala) issuer and debt ratings: Aa2 / on review for downgrade. The Prime-1 short term ratings were affirmed.

- Tourism Development & Investment Company (TDIC) issuer and debt ratings: Aa2 / on review for downgrade

- International Petroleum Investment Company (IPIC) issuer and debt ratings: Aa2 / on review for downgrade. The Prime-1 short term ratings were affirmed.

- Emirates Telecommunications Company (Etisalat) issuer ratings: Aa2 / on review for downgrade

- Dolphin Energy (Dolphin) long term debt rating: Aa3 / on review for downgrade

- Aldar Properties (Aldar) issuer and debt ratings: A3 / on review for downgrade

As part of the review process, we will continue to engage in discussions with the respective government officials and issuers regarding their policies and positions on each of the issuers to assess whether these ratings continue to be positioned appropriately. Assuming that we conclude that support assumptions should remain high, we would only expect moderate adjustments to ratings, though it could be multi-notch in particular where baseline credit assessments are low. Moody's will also be publishing a Special Comment in the coming days outlining the criteria we are applying in determining the support assumptions as part of the review and to provide broader guidance to the market on the key areas of focus. We expect to conclude the review over the next three months.

Moody's last rating actions on each of the names placed under review was on 17 October 2007 (TAQA, assignment of provisional guaranteed bond ratings), 27 April 2009 (Mubadala, assignment of bond ratings), 1 October 2009 (TDIC, assignment of bond ratings), 27 April 2009 (IPIC, initial rating assignment), 22 July 2008 (Etisalat, initial rating assignment), 29 July 2009 (Dolphin, assignment of bond and bank debt ratings), and 19 May 2009 (Aldar, assignment of bond ratings).

In the battle of the two worst predictors of anything, the question who ends up right may have well become moot.

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