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Tue 6 Dec 2011 11:12 AM

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Dubai, state entities have $101.5bn debt pile

Moody's warns Gulf emirate may need fresh financial support to meet debt obligations

Dubai, state entities have $101.5bn debt pile
Dubai still has a number of state-linked debt restructurings to complete
Dubai, state entities have $101.5bn debt pile
Dubai still has a number of state-linked debt restructurings to complete

Dubai and its state-owned non-financial companies have outstanding debt of $101.5bn and may need further financial support to meet these obligations, Moody’s Investors Service said.

Although “significant progress” has been made by the government and state-owned companies to tackle maturing debt, the rating company said in a report today that it remains concerned about the emirate’s maturing debt.

“Moody’s has seen very few real signs of material and voluntary deleveraging,” said David Staples, managing director for GCC Corporate ratings at Moody’s. “This raises concerns about renewed medium-term pressures when the refinanced obligations become due, as well as Dubai’s potential renewed need for further financial support.”

Dubai, the Gulf’s trade and tourism hub, was on the brink of a default in 2009 and is recovering after a $20bn cash injection from the UAE central bank, the Abu Dhabi government and its banks. State-controlled companies including Dubai Holding and Drydocks World are still in talks with lenders to restructure debt, while Dubai World reached an agreement with creditors on about $25bn of debt in March.

The government has about $27.9bn of direct debt, of which $18.45bn was raised to capitalize the Dubai Financial Support Fund, Moody’s said. State-owned companies have approximately $68.6bn in outstanding debt, excluding government guarantees, it said.

About $13.8bn in bank and bond debt is due to mature between the fourth quarter of 2011 and the end of 2012, with a further $11.2bn being restructured.

State-owned companies such as Dubai Holding Commercial Operations Group, Jebel Ali Free Zone and DIFC Investments, which have $3.8bn worth of debt maturing next year, are all facing refinancing risks and may experience “ratings volatility” as they move closer to the maturity dates, Moody’s said.

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jill 8 years ago

"excluding government guarantees" = non secured debts.

where is the incentive in paying back debts that are not secured?

(before any westerner talks about the 'moral obligation' that debtors must meet, I suggest you direct this talk to your own countries and corporations)

Louie Tedesco 8 years ago

Europe and the USA might be broke but there are hundreds of millions of citizens of the respective countries who share the burden of debt re-payment.

In the UAE and Dubai in particular, how will the small number of locals cope with such a high financial burden placed on them and their future generations? Expats don’t count in this debt calculation as they are transient and not accountable for repayment of the debt cited in this article.

We know there is a sovereign wealth fund, but this is not designed nor was it established to re-pay debts.

james t 8 years ago

@ jill and louie

I work in restructuring. i can tell you its not a pretty picture. the bottom line (in both sovereign and corporate terms) is that a restructuring only works if a viable debt sustainability plan matched with a believeable repayment profile can occur. louie rightly points out that the repayment base on locals will never be sufficient to repay the o/s debt...and jill is right that there is no incentive to repay ...and in an area where even a small cheque can land you in jail and the courts not having a viable nor transparent insolvency regime or repayment profiling process then it is very difficult.

james t 8 years ago

In the end what is needed is the underlying debt pile to be addressed.you now have an emirate with expats who are taking cash tax free out of the system and moving it immediately offshore.The locals have the benefit of all state services etc for free and there is no incentive to really add to the current quality of life..as far as foreign investors are concerend, they shouldnt have been here (in 70% of the cases) in the first place...how many hotels in a desert do you need? how many banks do you really need to service a small population? how many malls service how many people? now multiply all of that by 10 and finance it be debt. see the problem? As a restructuring professional, i would want to see the asset bases, cashflow and security in place.

sam 8 years ago

this is not a 'blame game' issue, expats vs. emiratis. this is about solving a major debt issue that is affecting everyone. it will be nice for 2012 to start off with the executive council and authorities addressing the economy doubts head-on by sharing what they and we all can do to address some of the fundamentals to help make 2012 successful. we like the uae and some of us have been here for a long time, we have emiratis as best friends, it is really time to put this expat vs. emiratis debate to rest and focus on how we can do things together. seriously!

Telcoguy 8 years ago

I do not think there is a debate here. And I do not think this has anything to do with expats, Paying (or not) this debt is not up to the expat community (as we are so often reminded)

Some of us may suffer the consequences of this situation, specially those involved in businesses catering to the local and expat population here or using UAE facilities for trading.
Some others, whose business activities are not really linked to the UAE will simply move to greener pastures if business conditions deteriorate beyond certain point. Everybody knows which tradeoffs are ready to do in order to enjoy the convenience (location and facilities) of being based here.

That is the nature of the beast. Not so different from the situation in the UK, where the highest (foreign) earners manage to get away essentially tax-free. Extremely unfair, I have to say, but very enjoyable. The loss personal income tax-revenue lost was, supposedly , recovered through the economic activity generated.

Telcoguy 8 years ago

I am not sure I understand your point. If Nakheel/Dubai World debt is not guaranteed by the Dubai Government then I agree, Dubai Government should not pay.
Then of course the logical course of action is for the creditors to seize the assets.
One way or the other, either the government (i.e. the taxpayers) assume the debt, or the creditors get the spoils and wipe off the original shareholders. I know no alternative to this, western or eastern.