Etisalat on ratings watch negative

Fitch Ratings has just put out an update saying that Etisalat could have its AA- credit rating downgraded if the federal government does not make it clear exactly how much it is willing to cover the company's debts.

This is interesting because as far as I know, Etisalat is not in a lot of debt, and is sitting in many billions of dollars in cash reserves.

The report also raised bigger questions about the credit worthiness of the Dubai government, downgrading the ratings of two major Dubai government companies, including DEWA, the electricity and water utility. While there is a general belied that Dubai's major corporations have the implicit backing of the federal government (and therefore, Abu Dhabi's massive oil reserves), Fitch said that this backing needs to be made more explicit.

According to Fitch, questioning of federal support:

"Reflects the increasing demands on its relatively small fiscal resources during the current period of economic stress [...] the increased risk that contingent liabilities arise from the exercise of its responsibility to ensure financial stability across the UAE, combined with the federal government's limited fiscal and financial flexibility, has weakened the UAE sovereign credit profile. Although the sovereign credit remains strong, the lack of clarity on the process for non-budgetary financial transfers between the UAE federal government, central bank and individual emirates, is a source of weakness."

Read on for the full report from Fitch.