Emerging market growth to benefit Dubai corporates, debt looms

Credit quality of Dubai corporates may benefit on the back of emerging markets growth, high oil prices and access to debt capital markets
Emerging market growth to benefit Dubai corporates, debt looms
Dubai, Dubai skyline, Burj Khalifa
By Massoud A. Derhally
Mon 11 Mar 2013 02:39 PM

The credit quality of Dubai corporates may benefit on the
back of emerging markets growth, high oil prices and access to debt capital
markets, Moody's Investors Service said in a new report.

"The credit quality of Dubai's rated corporates is
likely to benefit from economic growth in G20 emerging economies of 5
percent-6 percent in 2013 and the positive impact of high oil prices on
government budgets in the Gulf Cooperation Council," the rating
agency said.

However, it added that delays in addressing structural
issues along with Dubai's US$20bn of direct debt maturing in 2014 remain areas of
focus for investors.

Dubai has about US$110bn in debt amassed during the boom years
when it opened up its property market to foreign investors and the government
invested heavily in its infrastructure to anchor the emirate as a
transportation and logistics hub as well as a financial centre. The property market
in the emirate collapsed in 2009 following the subprime crisis in the US that
sparked a global credit crisis.

However, the economy is rebounding with the property market
showing signs of recovery and tourism growing. A partial rebound in the
property market, a resurgence in consumer confidence and an improved
performance in the banking sector has helped the Dubai stock market reach a
39-month high. The publicly listed Dubai Financial Market posted a
AED35.2m (US$9.6m) profit in 2012 after recording a loss of AED6.9m the year
before.

The economies of the UAE and Dubai, in particular, will
continue to expand by about 3.8 percent this year on the back of services,
trade and tourism, HH Sheikh Ahmed Bin Saeed Al Maktoum, who chairs Emirates
Group, Emirates NBD, and Dubai World told Arabian Business last month. The
UAE’s economy was projected to have grown 4 percent last year and is
estimated to slow down to 2.6 percent according to the International Monetary
Fund.

Moody's noted pockets of recovery in Dubai's real estate
market, citing investor appetite for new real estate developments by Emaar Properties.
Demand for the property developer's project reflects "renewed investor
confidence in a recovering property market", Moody's said.  

However, the rating agency added that "2014 will be a
pivotal year" for Dubai as US$20bn of direct government debt related
to Dubai World becomes due. "It will be constructive for the overall
environment when clarity emerges as to how these maturities will be addressed,
although market expectations that they will be extended are a natural
assumption," it said.

"Weaknesses in the institutional framework continue to
cloud the picture," Moody's said, adding, "Little progress has been
made on clarifying and strengthening the legal framework for insolvencies, debt
restructuring, while details of the Dubai government's capacity to support its
GRIs remain uncertain."

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