Nov. 4 (Bloomberg) -- DP World Ltd., the Middle East’s biggest port operator, and Dubai Electricity & Water Authority were among five companies that had their credit ratings cut at Moody’s Investors Service, citing tighter government criteria for supporting state-controlled entities.

“The downgrades reflect recent disclosures that reveal the increasing conditionality under which support may be provided,” Dubai-based Philipp Lotter and London-based David Staples wrote in a report today. The criteria include whether the government- owned companies “are able to demonstrate sustainable business plans, the on-going support of their existing financial creditors, and realistic prospects of fulfilling their repayment obligations,” they added.

Dubai, the second-biggest of seven states that make up the U.A.E., and its government-owned companies borrowed $80 billion to finance its transformation into a financial and tourist hub before credit markets froze. The emirate borrowed $10 billion by selling bonds to the country’s central bank in February, and may raise another $10 billion in November, Mohammed Alabbar, who headed the government committee evaluating the impact of the credit crisis on Dubai, said last month.

DP World, Dubai Electricity, and DIFC Investments had their ratings cut to A3 from A1 at Moody’s. Jebel Ali Free Zone, a government-owned industrial park, was downgraded to Baa1 from A3, while Dubai Holding Commercial Operations Group LLC, the state-controlled entity that’s in talks to merge some of its units with Emaar Properties PJSC, had its ratings lowered to Baa1 from A3, the report said. Emaar’s rating was unchanged.

Market Response

“Market reaction, in spread terms, to the announcement by Moody’s has been muted as investors had already priced in a ratings downgrade,” Chavan Bhogaita, head of credit research at National Bank of Abu Dhabi PJSC, said in a phone interview. “These credits have not been trading at levels commensurate with their ratings for some time, and hence today’s downgrades have limited impact.”

DP World’s 6.85 percent fixed-coupon bond maturing in 2037 was trading at 87.144 cents to the dollar at 2:20 p.m. in Dubai today, up 0.1 percent from yesterday, according to the composite prices from three banks provided to Bloomberg.

The Moody’s downgrades come a week after the Dubai government raised $1.93 billion from the biggest Islamic bond sale from the Gulf Arab region this year. The emirate sold $1.25 billion of dollar-denominated, five-year, fixed-rate Islamic bonds, or sukuk, and another 2.5 billion dirhams ($680 million) of local-currency floating-rate Islamic notes on Oct. 28.

Dubai house prices increased 7 percent in the third quarter from the second, gaining for the first time in a year, Colliers International said yesterday. Home prices in the emirate plummeted 47 percent in the second quarter from a year ago, the steepest drop of any market, according to Knight Frank LLC.

To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.netArif Sharif in Dubai at asharif2@bloomberg.net

Last Updated: November 4, 2009 05:53 EST