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Tue 25 Oct 2011 08:03 AM

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Investors still wary on Dubai state-linked firms

Still unclear as to how state firms will revamp their debt piles, says Moody’s exec

Investors still wary on Dubai state-linked firms
Dubai has nearly $14bn in debt maturing in 2012

Investors are cautious about the ability of some of Dubai's government-related entities to refinance their debt piles even as the emirate works to restore confidence in its financial health, a managing director at Moody's said on Monday.

While economic zone Jebel Ali Free Zone (JAFZA) and Dubai International Financial Centre Investments (DIFCI) have been chipping away at their $1.25bn and $2bn debts maturing next year, there is still a lack of clarity as to how the firms will refinance, said David Staples, managing director of EMEA corporate finance at the ratings agency.

"There's a question mark in the eyes of investors as to how they're going to do that. Dubai should be seen as supportive and Dubai is assumed to be supportive," he said.

"Investors get concerned that Dubai's willingness to support may not translate into capacity," he added, referring to the emirate's ability to fund the shortfall.

A report earlier this month by investment bank J.P. Morgan said Dubai's government-related entities (GREs) can pay down or refinance nearly $14bn in debt maturing next year with relative ease.

Ratings for JAFZA and DIFCI - part of the conglomerate of companies known as Dubai Inc-  still reflect a low risk of default, at B2 and B3 respectively.

Staples said if the companies addressed their refinancing needs, their ratings could improve.

The Gulf Arab emirate is working to rebuild its credibility among investors who fled after state-owned conglomerate Dubai World said in 2009 that it would restructure about $25bn in debt.

The crisis left the tiny desert city state with grand ambitions coping with a burst property bubble and a debt pile estimated at over $100bn at its state-owned companies.

Staples said successful refinancings at other Dubai-related entities had bolstered some confidence in Dubai's ability to handle its debt obligations.

Dubai Holding, for instance, said in August it had extended the repayment of a $1.16bn loan which had been due that month to 2016.

"The broad trend is positive because they are working through steps. But that's coming off of a very low base," he said, adding that Dubai will need to prove it is disciplined in its support of its government-related entities.

Staples said that neighbouring emirate Abu Dhabi had been successful in supporting its own entities and distributing its wealth to other struggling emirates, while retaining oversight.

He added that more transparency about how Dubai will support its government entities would allow for more accurate ratings.

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