Despite Dubai receiving $10 billion yesterday from Abu Dhabi, it has yet to convince investors it will meet all of its obligations.
Debt from Dubai state controlled entities DP World Ltd, Dubai Commercial Operations Group and Nakheel remains as much as 29 percent lower than before the emirate said on Nov 25 it was seeking a “standstill” from creditors.
Standard & Poor’s said it won’t automatically reverse downgrades made to ratings on state entities since the announcement.
Dubai’s cash needs are “not going to stop and go away,” said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh. “There is still debt that needs to be settled in 2010 and 2011.”
Abu Dhabi, the capital of the UAE and holder of 8 percent of the world’s oil reserves, provided $10 billion for Dubai’s support fund, of which $4.1 billion was used to repay a Dec 14 Islamic bond of Dubai World’s property unit of Nakheel.
The rest of the money will help keep state owned holding company Dubai World operational until it reaches an agreement with lenders, the government said yesterday in a statement.
At least $55 billion of Dubai and its state owned companies’ bonds and loans are due in the next three years, Goldman Sachs Group Inc economist Ahmet Akarli said in an emailed note to investors.
Dubai, the second biggest of seven states that make up the UAE, and its state owned companies borrowed at least $80 billion until last year to help turn the emirate into a tourist and financial service hub.
The collapse of global credit markets led to a 50 percent crash in property prices in Dubai and to concern some of its companies will be unable to repay loans.
Nakheel has $1.73 billion of debt coming due in the next two years, data compiled by Bloomberg show. The company’s $750 million 2011 Islamic bond rose to 67 cents on the dollar yesterday from 36 cents on Dec 11, according to Citigroup Inc prices.
The securities, known as sukuk, are down 24 percent from 88.25 cents on Nov 24, the day before Dubai World asked creditors to agree to a delay in debt repayment.
The Nov 25 announcement spurred Dubai’s steepest stock market selloff in 13 months and Europe’s worst rout since April. Nakheel’s $3.52 billion sukuk tumbled as much as 62 percent in three days, according to Citigroup.
Dubai World said on Dec 1 that the restructuring would affect $26 billion of debt.
Goldman Sach’s Akarli said: “Yesterday’s bailout was “only the beginning of a comprehensive financial realignment process which may involve asset sales, debt restructuring and liquidation of insolvent entities, it is clear additional aid from the UAE. will be needed.”
The emirate set up a financial support fund earlier this year to help state related companies. The latest $10 billion bailout followed the sale of $10 billion in Dubai bonds to the national central bank based in Abu Dhabi in February and a $5 billion loan by two Abu Dhabi owned commercial banks on Nov 25.
In an interview with Bloomberg Radio, Arnab Das, head of market research and stratergy, Roubini Global Economics in London, said: “More damage would have been done if Abu Dhabi had not come out with these resources.”
“There is probably going to be continued implications for other issuers that are heavily leveraged who don’t have short-fire access either to refinancing or bailout resources,” he added.
Debt restructuring by Dubai state run companies may almost double to $46.7 billion as more of the emirate’s businesses may need help making payments, Morgan Stanley said in a report Dec 8. Another state owned company, Dubai Holding LLC, may join Dubai World in restructuring debt, the report said.
Sfakianakis said: “Abu Dhabi’s rulers will not necessarily just bail out everyone across the board, they will be selective.”
DP World’s $1.5 billion sukuk, due 2017, is 10 cents lower than on Nov 24, after rising yesterday to 81.90 cents on the dollar. The $500 million of Dubai Commercial Operation Group’s dollar denominated bonds due in 2012 is 29 percent lower than on Nov 24, according to BNP Paribas SA prices.
Mohieddine Kronfol, managing director of Algebra Capital Ltd, a fund manager, said: “The size of Dubai World’s debt means that the restructuring would have to continue, which could be painful.
“That may involve a ‘haircut’ and a significant extension of loan maturity for banks,” he added.
Dubai World has about $40 billion of bonds and loans outstanding, Goldman Sachs estimated. Of that, $8 billion will be maturing in 2010, $12 billion in 2011 and $5 billion in 2012.
Dubai World may sell assets in the UAE. and abroad to repay its borrowings, Abdulrahman Al Saleh, director general of Dubai’s Department of Finance told Al Jazeera television Dec 6. These are “assets belonging to the company and not the government,” he said.
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