04 Dec 2009 6:48 AM (EST) Fitch Ratings-London/Dubai-04 December 2009:

- Dubai policy changes a local shock, but country-specific

- Fitch's methodology for state-linked entities remains conservative, with no fundamental methodological implications from events in Dubai

- For the vast majority of Fitch rated corporate entities with state linkage, Fitch will continue to give no or very limited benefit in rating levels for state support.

Fitch Ratings says policy developments surrounding state support for Dubai-based entities will not result in a broader reassessment of how the agency assesses sovereign support, or current expectations of support, when assigning corporate bond ratings for state-owned enterprises (SOE) in other countries.

Dubai's policy volte-face has led to sharp rating downgrades for Fitch rated SOEs in the emirate (DEWA rated 'BBB-'/RWN; DHCOG rated 'BB'/RWN). A review of the conditions applicable to this individual case indicate, however, that the approach used by Fitch in rating state-owned enterprises (SOE) captures both the risks and benefits of state ownership consistent with other 'parent'/'subsidiary' relationships. As a result, although the ratings of all corporates generally remain more vulnerable than usual to rating downgrades, given the general economic background, Fitch does not anticipate major systematic revisions to either its expectations of state support, or their influence on our ratings.

- State ownership plays a minor role in Fitch SOE ratings

State-ownership is not a major driver of ratings, and Fitch has historically given limited rating benefit for state ownership. As an example, in EMEA, two-thirds of those rated entities with state ownership are rated on an entirely stand-alone basis - with no positive rating influence from their state linkage. A further 9% receive a limited number of notches benefit above their stand-alone profile.

The remainder are either notched down from or aligned with Fitch's view of the sovereign's credit risk. These latter cases tend primarily to be strategic companies owned by governments which either have explicit contractual support, usually in the form of a debt guarantee, or whose role as sovereign wealth funds, or corporatized public authorities support alignment. In many cases, SOEs will also have financial profiles of sufficient stand-alone strength (strong cash flow generation, limited leverage, prudent maturity profiles) to limit volatility in ratings even if the support environment changes.

- Political risk will always remain as a real, but typically not dominant, event risk

Ratings which factor in implicit state support (as opposed to explicit guarantees) will always be subject to the very real event risk of changes in political approach. This has occurred in the case of Dubai, with the changing local policy environment dictating multi-category rating actions under the existing methodology. This event risk should nonetheless not be exaggerated, relative to other event risks faced by corporate debt obligations. The two dominant event risks - mergers & acquisition activity and movements in country ceilings - typically exert a far stronger influence over corporate ratings than changes in the support policy of a sovereign.

- Dubai not an obvious precedent

Finally, the scale of rating changes in Dubai is not an obvious precedent. Although the situation remains fluid to different degrees in different UAE emirates, with a number of Rating Watches still in place at the time of writing, the unusual constellation of the support apparatus that existed locally prior to recent events - implicit support from a strong member state, via a financially weaker member state, within a federation with pooled sovereignty - is not typically duplicated in other countries where Fitch maintains SOE ratings. As a result, Fitch believes that current events in the UAE have limited value more generally as a precedent to the behaviour of sovereign authorities.

A report summarising Fitch's SOE ratings in EMEA, 'Update: Sovereign-owned Entity Corporate Ratings in EMEA' will be freely available at www.fitchratings.com later today.

Contacts: Richard Hunter, London, +44 20 7417 4362; Alex Griffiths, +44 20 7417 4207; Julian Crush, +44 20 7682 7370; Bashar Al Natoor, +971 4 408 1809.

Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com; Hannah Warrington, London, Tel: +44 (0) 207 417 6298, Email: hannah.warrington@fitchratings.com.

Additional information is available at www.fitchratings.com.

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