Tumult in global economy fails to derail emirate’s recovery from 2009 debt crisis
Dubai state companies are securing bank financing as the
latest tumult in global markets fails to derail the emirate’s recovery from the
2009 debt crisis.
Dubai Holding, one of the three main state-owned holding
companies, reached an accord with lenders to extend a $1.16bn loan to December
2016, according to a company official.
Port & Free Zone World, an intermediate holding company
for port operator DP World Ltd., is raising $850m to refinance debt, three
bankers familiar with the plan said. Investment Corporation of Dubai said on
Aug. 8 it will repay $4bn of loans when they mature on Aug. 21.
“Banks are continuing to extend financing to Dubai Inc
because of its improving economy and debt profile,” Gus Chehayeb, a Dubai-based
associate director at investment bank Exotix said by email Wednesday. There is
“encouraging evidence with regards to its willingness to repay debt, sell
assets, and stay current on its interest payments,” he said.
While about $8 trillion in value was erased from global
stock markets between July 22 and Aug. 8 amid concern growth in Europe and the
US is slowing, Dubai’s share index is little changed and benchmark bonds have
climbed. Gross domestic product in the emirate, which received a $20bn bailout
in 2009 from its central bank and neighboring Abu Dhabi, may grow about 2.8
percent this year, according to the International Monetary Fund. The government
estimates the economy grew 2.4 percent in 2010 after contracting in 2009.
Investment Corp. of Dubai said on Aug. 8 it will repay $4bn
of loans when they mature on Aug. 21, rather than pursue refinancing it began
in May. The obligation will be repaid from internally generated cash, mainly
dividends received from the company known as ICD’s operating subsidiaries,
according to a statement yesterday.
“ICD paying back $4bn of maturing debt is a very strong
message that Dubai’s debt story is on an increasingly better footing,” said
Rawad Hakme, the Dubai-based co-manager of fixed income at the UAE unit of
EFG-Hermes Holding, the biggest publicly traded Arab investment bank. “Credit
investors are all the more comfortable when a borrower pays off its dues
especially in times of global duress. Dubai’s perceived creditworthiness is on
The cost to insure Dubai’s debt against default dropped
yesterday by six basis points to 364 basis points, after hitting 370 on Aug. 9,
the highest level in more than three months, according to five-year credit
default swaps from data provider CMA. The swaps, which pay the buyer face value
in exchange for the underlying securities or the cash equivalent should a
government or company fail to adhere to its debt agreements, are down about 44
percent from the November 2009 after state-owned Dubai World announced plans to
restructure about $25bn of debt.
“If this is true de-leveraging, that is no other parts of
ICD have raised money to pay this, it is very positive,” said Abdul Kadir
Hussain, who helps oversee $2bn in fixed- income assets as chief executive
officer at Mashreq Capital DIFC in Dubai. Even if the subsidiaries have
borrowed, “the debt is essentially closer to the operating companies, which for
debt holders is a better place to be,” he said by phone.
Dubai’s credit risk has dropped over the past two years as
debt restructuring deals, bond repayments and profitability at companies boost
confidence in the emirate’s economic rebound. The second-biggest of seven
sheikhdoms that make up the UAE, Dubai is also benefiting from stable
government as political upheaval sweeps other parts of the Middle East.
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Dubai Holding Commercial Operations Group, a unit of Dubai
Holding said July 14 the company had repaid a 250-million Swiss franc ($324m)
bond and is committed to meeting future obligations. Dubai Group, an investment
company owned by the emirate’s ruler, is in talks with banks to alter the terms
on $10bn of liabilities, while state-owned Dubai World forged an accord with
creditors at its restructuring in March.
DP World, the world’s fourth-biggest port operator, posted
an 11 percent rise in container volumes in the first half and said it expects
to have the best results in the industry. Dubai’s Emirates NBD, the UAE’s
biggest bank by assets, reported an 87 percent surge in second-quarter profit
to AED744.5m ($203m).
Tamweel, the mortgage company rescued by Dubai Islamic Bank
in September, reported a five-fold jump in second-quarter profit on July 19 as
bad-loan provisions dropped.
The emirate has $31.2bn of debt coming due this year and in
2012, according to an IMF report published on June 16.
“Although Dubai Inc still has a challenging debt burden, its
debt profile has improved in that a meaningful portion of its bank debt has
been extended,” Chehayeb at Exotix said.
The Dubai government raised $500m from the sale of 10-year
bonds with a five-year put option in June at a yield of 3.75 percent over the
five-year mid-swap rate, or 5.59 percent. The sale received more than $1.8bn in
ICD-owned Emirates, the world’s biggest airline by international
passengers, raised $1bn in June from the sale of five-year bonds.
“Dubai has been fortunate to be ahead of the curve in debt
restructuring and de-leveraging, making it credit-worthy once more,” Emad
Mostaque, a London-based Middle East and North Africa strategist at Religare
Capital Markets Plc said by email. “With a dollar peg and US interest rates
lower for longer, the UAE in general should attract more interest.”
Doesn't this all sound a bit like "the global downturn will not affect Dubai" in 2008?