Dubai’s debt saga
With the emirate’s total obligations now estimated at $170 billion, analysts say the government may no longer come to the rescue of its related entities.
January 20, 2010 6:17 by Aarti Nagraj
However, the Dubai government also announced this week that the $10 billion that it received from Abu Dhabi includes $5 billion in bonds bought by two Abu Dhabi banks, Al Hilal Bank and National Bank of Abu Dhabi in November last year. So effectively, the ‘bailout’ has reduced in size.
And Nakheel still has two more outstanding bonds – a $1 billion bond maturing in May this year and a $750 million bond maturing in January 2011.
“There is very unlikely to be any government support to Nakheel bonds going forward,” says Soussa. “There is debt standstill and restructuring which means that no support is forthcoming. So we don’t expect any support from that front. Does that mean that there will be no support for all the other companies? We don’t know. But certainly what we are not going to do is give them the benefit of doubt,” he says.
While the Dubai government may not have to come to the aid of its companies, Dubai Inc still carries a massive debt burden. And it seems to be borrowing more to repay the existing loans.
So, is there a way out of the debt cycle? Maybe, says Soussa: “What Dubai needs to do is either continue to refinance its debt or to extend the maturities of its debt in such a way so as to allow the revenues it earns to eventually play down the debt.”