Dubai will 'prove everybody wrong' over debt

Senior Dubai official says he expects key firms to refinance debt without gov't help this year
By Bloomberg
Fri 17 Feb 2012 02:40 PM

Dubai, the emirate that teetered on the brink of default in 2009, expects two of its main companies to refinance $3.25bn of debt this year without government help as economic growth accelerates.

The second-biggest member of the UAE federation doesn’t need to raise money from international bond markets in 2012 and has “no intention” of seeking support from Abu Dhabi, Mohammed Al Shaibani, director general of the Dubai ruler’s court, said in an interview in Dubai.

Abu Dhabi gave $20bn to its neighbour in 2009 to help restructure debt.

“We have been proving everybody wrong in the last three years and this is going to be a fourth year proving everybody wrong,” he said. “This year is much better than last year in every way you look at it.”

Dubai’s default risk has dropped over the past two years as debt restructuring deals, bond repayments and profitability at companies boost confidence in its economic rebound. The benchmark stock index gained 12.5 percent this year, making it the best performer in the six-nation Gulf Cooperation Council.

Dubai economy’s may expand as much as 5 percent this year after growing more than 3 percent in 2011, Sheikh Ahmed bin Saeed Al Maktoum, the head of Dubai’s Supreme Fiscal Policy Committee, said on Wednesday.

Dubai may “muddle” through a financing strategy this year, Bank of America Merrill Lynch said in December.

DIFC Investments, a unit of the emirate’s tax-free business financial centre, has $1.25bn in Islamic bonds maturing in June, while Jebel Ali Free Zone FZE, another business park, faces maturity of AED7.5bn ($2bn) in Shariah-compliant notes in November.

“I’m very confident they will manage to sort out these issues on their own,” Al Shaibani said. “We are available for any advice, any help. But mainly they will manage it themselves.”

The emirate’s five-year credit default swaps tumbled 46 basis points this year to 399, according to data provider CMA, which is owned by CME Group and compiles prices quoted by dealers in the privately negotiated market. They remain the fourth-highest in the Middle East.

DIFC Investment’s sukuk were at 96.62 cents on the dollar on Wednesday in Dubai, near the highest level since November 2007. Jebel Ali Free Zone notes were at 94.64 cents on the dollar, according to data compiled by Bloomberg. The yield on Dubai’s 5.591 percent government dollar bond due June 2021 has dropped 37 basis points, or 0.37 percentage point, this year to 5.61 percent.

Dubai World, one of the emirate’s three main holding companies, roiled world markets in 2009 when it sought a delay in repaying about $25bn of debt, accumulated as part of its plan to transform the sheikhdom into the Middle East’s business and trade hub.

The borrowing binge saw Dubai build the world’s tallest skyscraper, a man-made, residential island shaped like a palm frond, and a business park hosting offices of companies such as Goldman Sachs Group and Standard Chartered.

Dubai Airports, home to the biggest Arab airline Emirates, handled a record 51 million passengers last year, an increase of 8 percent from 2010, the state-run company said January 24. In December, 4.69 million travellers passed through the airport compared with 4.26 million a year earlier.

Dubai and its state-controlled companies face about $10.3bn in debt repayments this year, Bank of America Merrill-Lynch estimates from October show. Al Shaibani declined to give an estimate of total debt due this year.

“What people sometimes forget is that for all the noise of out Dubai, the fact is that there has been no default of a traded instrument,” Raza Agha, London-based senior economist at the Royal Bank of Scotland, said by e-mail on Wednesday.

“They didn’t default even in 2009 when the situation was worse. Even back then, they paid off the debt. Since then, Dubai’s economy has recovered well.”

Dubai Holding Commercial Operations Group, a property and hospitality company owned by the emirate’s ruler, paid back a $500m bond that matured on February 1.

Several companies are still seeking to restructure debt. Dubai Group, an investment company also owned by the ruler, offered to pay creditors over five to 10 years as it seeks to restructure $6 billion of bank loans, a banker familiar with the proposal said February 6.

Drydocks World, a ship-repair unit of Dubai World, said in December it may reach an agreement with creditor banks on $2.2bn of debt in March.

The government is encouraging companies and lenders to reach agreements before seeking government help, Al Shaibani said. “They should initiate the process of refinancing and sorting out their issues and if they have any issue or difficulty or advice, or if they want support they will come back to us,” he said.

Government support doesn’t necessarily mean offering debt guarantees, he said. He listed the Dubai Support Fund, set up in 2009 with the help of Abu Dhabi’s money, as one potential avenue of assistance “under certain conditions, of course.”

Some creditors “thought they just go straight to the government and expect the government to write a check,” he said, giving the example of Drydocks. “It doesn’t work this way. They have to go through the process, and they have to respect corporate governance.”

Monarch Alternative Capital, a New York-based investment company, filed a claim of about $45.5m in a London court in October against Drydocks. The company is relying on its operations in Dubai to make up for the “challenge” posed by its investments in the Far East, Al Shaibani said.

“In reality the main money generator is Dubai, and Dubai is doing really well,” he said. “They are very busy, almost 100 percent occupancy. They have a huge business in the pipeline.”

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