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Sun 12 Jun 2011 07:32 PM

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Dubai to meet potential $5bn bond investors in London

Dubai gov't says it will hold meetings on June 13-14, ahead of imminent launch of the bond

Dubai to meet potential $5bn bond investors in London
DIFC full
Dubai to meet potential $5bn bond investors in London
Dubai, Sheikh Zayed Road, traffic

Dubai, facing a budget deficit, is planning a benchmark sovereign dollar bond issue in the coming days after holding meetings with potential investors in London on Monday and Tuesday.

The Gulf Arab emirate, known for its extravagant projects such as the Palm Jumeirah artificial islands and the world's tallest tower Burj Khalifa, has been scrambling to put finances in its state-owned conglomerates back in shape since its 2009 debt crisis.

The imminent bond issue is expected to tap out an existing debt facility, and Dubai announced in a prospectus on Sunday that it would launch a new $5 billion Euro Medium Term Note framework for future debt issuance.

The unrated emirate, whose overall debt load is estimated at $115 billion or 140 percent of its economic output, has hired Mitsubishi UFJ Securities, Standard Chartered Bank and UBS AG as arrangers and dealers for the new Emirates NBD and National Bank of Abu Dhabi will be the dealing banks for the new bond programme.

"We see ... the programme as a positive step. It gives improved transparency of fiscal and debt positions and developments," said Monica Malik, chief economist at EFG-Hermes.

"Moreover, this external bond programme will also help reduce reliance on domestic funding, although the rate of interest will be vital," she said.

Last week, Dubai's department of finance announced it planned to come back to the debt market with a potential dollar bond issue, buoyed by tightening spreads and an oversubscribed bond from its flagship airline recently.

The imminent debt issue will happen shortly after meetings with investors in London this week, the Dubai government's media office said in a statement, with Emirates NBD, HSBC , Royal Bank of Scotland and UBS as joint book-runners.

Appetite for Dubai debt has been rising in recent months, with the emirate seen as a safe haven as social unrest spread to nearby Bahrain, Oman and Yemen.

The United Arab Emirates and Qatar are the only two states in the Gulf, the world's top oil exporting region, which have not seen any protests inspired by uprisings that toppled leaders in Egypt and Tunisia.

Dubai's budget deficit more than halved to AED6.02 billion ($1.64 billion) or 2 percent of gross domestic product last year from 2009, coming slightly above the original plan, the prospectus showed.

The shape of Dubai's finances is expected to improve this year helped by banking sector stabilisation, trade recovery, oil prices at around $100 per barrel as well as austerity measures.

"Revenue is likely to exceed that set out in the budget," said Simon Williams, chief economist at HSBC. "The outturn will depend on actual spending levels."

In January, Dubai's ruler approved a 2011 government budget with a lowest deficit in four years of AED3.78 billion, or 1.3 percent of economic output, with revenue set at 29.91 billion and expenditures of 33.7 billion, slightly below 2010.

The emirate, which lacks oil wealth of neighbouring Abu Dhabi, has no current plans to implement corporate or income taxes, the prospectus said. Various fees from housing to tourism make up around 62 percent of its budget.

Besides customs duties, Dubai levies a 20 percent income tax on profits earned by foreign banks.

The public sector plays a leading role in the Dubai economy, which accounts for 28 percent of the overall output of the UAE, the world's No.3 oil exporter, but the direct government spending amounts to just 10 percent of GDP.

A government official said in May that Dubai, bracing for some $30 billion in debt redemptions over the next two years, plans to cut state spending by 20 to 25 percent until 2013 to narrow its funding gap.

Dubai's direct debt was AED115.4 billion ($31.4 billion), or 38 percent of 2010 GDP as of May 20, according to the document, up from 105.5 billion at the end of July 2010.

Dubai's trade and property-based economy expanded by 2.4 percent last year, the prospectus showed citing preliminary data, higher than a previous 2.2 percent estimate by the emirate's statistics office. It shrunk by 2.4 percent in 2009.

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Madurai 8 years ago

Hope, Govt delegation can win their confidence to revive the economy to new heights. Best way is to accept and look for solution. Every economy faces the same challenge at this stage but we have every chance to bounce back quicker than others since everything is ready to move ahead without any further spending... Good Luck.

Telcoguy 8 years ago

Huh? do you really believe what you write?
Dubai needs to come with a new business model. And it will involve some serious tradeoffs, let see what comes out of the discussions but I see only two potential outcomes: either dubai opens up its economy on a radical way (think of permanent /quasi permanent residence, taxes...) or it need to go back to AD to pay its debts.
There is simply no other way.

Mike Jones 8 years ago

Ah Telcoguy, you and your same ideas about permanent residency and taxes. Dubai's business model works perfectly fine: provide a safe and secure place of business in an excellent geographical location for people to do business in. That is the entire model and so far, it has worked beautifully not just for Dubai, but also for Abu Dhabi, Qatar and KSA

Dubai, however, does not need to go back to AD to pay its debts. They are not debts; and anyone who believes that Abu Dhabi is going to tell Dubai "um, you owe us money" simply has zero idea.

john 8 years ago

But Dude......the gov can't buy gas.

Abood 8 years ago

@ Telcoguy, why don't you get it? You are welcomed in the UAE but as a guest whether you stay a day or for a century. You are not the son of this land, you belong elsewhere. The UAE is not the surrogate mother of anyone.

Lionheart 8 years ago

Your points are entirely correct Abood but you miss a small point . When the host country takes the guests money for investment and enters into a legally binding contract then fails to deliver don't expect the guest to walk away lightly without fuss . Everybody is waiting for some divine intervention to save the day and let me tell you , it ain't going to come . If you've lost money then just walk away from it , let the market correct itself then try again . You can't beat the market people .

Jon 8 years ago

Yawn. The same old answer.

However, I took your advice and my quality of life has improved dramatically. There's more to life than a tax free salary.

Telcoguy 8 years ago

@Abood, I am not interested neither in getting residence here nor in paying taxes. I am just stating the only two alternatives.
@Mike, Dubai is working so well, that right now they are meeting in London to get 5th financing to make an initial payment on the debts they do not have, according to you.

Again, I do not need your passport. I only need DBX airport to make my trips shorter and more bearable. The tax free environment suits me well, but I am afraid its days are numbered.

Simon 8 years ago

@Mike...you say Dubai has no debts? good grief man, where having you been hiding your head? Dubai has a reported $126Bln debt issue....10 times its declared GDP! That my friend is debt on a collossal scale. AD did NOT gift Dubai $20Bln either, it was a 'loan' in the way of a 5yr Bond. You really do need to eduate yourself and not just 'sweep' the whole issue aside as though it was nothing. Look at Europe...its close to collapse because of its DEBT. Its not fantasy...its reality.

Djilali 8 years ago

Dubai's debt is rumoured to be around $140B and it's GDP is in the range of $48B.
Fiscal revenue for 2010 was $5B: Dubai is heavily in debt.
That's the hard facts.
I don't think it can serve the interest of it's debt for 2011 and 2012, that's why they're trying to sell these bonds right now.

Dubai needs to change its business model: right now, it's unsustainable.