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Wed 28 Dec 2011 11:01 AM

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Dubai firms may need support to refinance 2012 debts: S&P

Dubai government-related entities are up against significant risks, ratings agency says

Dubai firms may need support to refinance 2012 debts: S&P
Dubai credits have outperformed many high-grade bonds in the UAE as the year draws to a close (Bloomberg Images)

Dubai-owned firms face “significant risks” with refinancing debts due to mature in 2012, according to a new report from Standard & Poor's.

Although the Dubai economy is beginning to bounce back, rated Dubai government-related entities are up against significant risks, the credit rating agency claimed in its latest report on the emirate.

Entitled ‘Dubai Government-Related Entities Face Debt Maturities And Refinancing Issues In 2012,’ the report highlighted two government-backed companies which it believed were likely to struggle with debts in 2012.

DIFC Investments is due to repay a $1.25bn bond in June 2012 and the port operator Jebel Ali Free Zone (JAFZ) will need to repay a $2bn bond which matures in November.

S&P forecast that both entities were “likely struggle to refinance without some form of government support."

"Risks linked to the weakening global economic outlook, the Arab Spring, and volatile equity and bond markets have raised concerns as Dubai GREs face large debt maturities and refinancing needs next year," said Standard & Poor's credit analyst Tommy Trask.

The latest report also rates Dubai Electricity and Water Authority, DP World Ltd and Emaar Properties.

“The results range from no uplift for DP World and Emaar to three notches of uplift for DEWA and DIFC Investments,” S&P added.

However, a year-end rally in Dubai-related bonds suggests a more positive signal for 2012, suggesting more investors are becoming convinced the emirate can arrange smooth refinancing for state-owned firms next year.

Government-related entities in Dubai have bonds worth $3.8bn maturing in 2012. With the real estate market still sagging, the stock market moribund and many banks reluctant to lend because of global financial instability, investors have worried that some of those bonds might be restructured, with changes to repayment terms that disadvantage creditors.

Such speculation prompted HH Sheikh Ahmed bin Saeed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee, to declare on December 7 that restructuring was not on the cards, though he said the government might look into refinancing part of the debts, presumably through issuing new bonds or loans.

"There is no truth to reports being circulated about an intention to 'restructure' certain debts owed by the Dubai government companies in 2012," Sheikh Ahmed said.

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