Moody's upgrades DEWA's ratings

Utility's issuer rating upgraded by a notch.

The outlook is positive for DEWA.
The outlook is positive for DEWA.


Moody's Investors Service has upgraded to Baa2 from Baa3 the issuer rating of Dubai Electricity and Water Authority (DEWA), the provisional rating of its global medium-term note programme and the ratings of the three senior unsecured notes issued under the programme (due in 2015, 2016 and 2020 and amounting to $3.0 billion in total).

Concurrently, Moody's has assigned a stable outlook for all ratings.


"We have upgraded DEWA's ratings to Baa2 as a result of the strong and incremental improvement in the company's financial profile since 2012, when the rating was upgraded to investment grade status," says Rehan Akbar, an Analyst in Moody's Corporate Finance Group.

"DEWA is benefiting from the visible broad-based economic recovery that the Emirate of Dubai is experiencing and, with 29% reserve margins over peak demand, the company is in a comfortable position to provide power to customers for the next 2-3 years from its existing asset base."

Today's upgrade of DEWA's ratings reflects the improving trend in the company's financial profile in conjunction with a more positive macroeconomic environment.

Although the regulatory framework in the Emirate of Dubai is not fully developed, it remains supportive for DEWA and policy changes have consistently played an important role in strengthening the company's cash flow generation ability through tariff revisions.

As a result, the company has reduced leverage from a peak adjusted debt to book capitalisation ratio of 41.6% as at fiscal year-end (FYE) 2010 to 26.5% at FYE 2013. During the same period, adjusted interest coverage as measured by (cash flow from operations (CFO) pre-working capital + interest expense)/interest expense has increased from 3.3x to 5.1x.

A consideration in assessing DEWA's credit quality is the lack of diversification given that its sole exposure is to the Emirate of Dubai.

The Baa2 rating also incorporates a degree of uncertainty should economic development in the Emirate accelerate to such an extent that capex plans might also need to be accelerated in order to cater for mounting demand from customers.

DEWA has adequate liquidity with annual cash from operations of about AED6.5 billion (around $1.77 billion) as well as AED1.3 billion ($354 million) of cash balances and $460 million of undrawn export credit agency facilities as of FYE 2013.


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