Citing Dubai’s deteriorating credit worthiness–government debt is expected to reach some 40% of GDP by year’s end–Fitch placed the UAE’s largest telecoms firm, Etisalat, which is 60.03% owned by the UAE and is the second-largest operator in the MENA region by market capitalization, on watch with a negative outlook. The firm’s AA- credit rating could be downgraded, Fitch warned, if government officials did not further articulate its willingness to cover the company’s debts (some commentators astutely noted that what this is in fact asking is to what extent will Abu Dhabi’s massive oil reserves further insure its arguably profligate sibling). “While the [UAE’s] 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,” the rating agency noted.

The downgrading of Etisalat, however, would be curious, and almost certainly arbitraged away. The company enjoys a share price to operating cash flow ratio of 8, and a beta of .63, meaning it is less volatile than the overall market. Most important to its prospects for sustained profit growth, however, is a growing portfolio of overseas assets. This is especially vital to operations as the UAE’s mobile penetration rate has now exceeded 209%, meaning every single resident of the country currently has two lines to his or her name. While 90% of its revenues are UAE-derived, Etisalat is poised to capture emerging market share: in addition to the seventeen countries it currently operates in, the company acquired an Indian operator earlier this year and has submitted bids in Sri Lanka and Libya.