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Dubai assets on the line

Dubai assets on the line

Dubai is expected to boost budget revenues through asset sales, according to analysts, who say bond issuance and funds from other Gulf states are also options – ahead of new taxes.

September 13, 2010 2:48 by

Dubai may have to step up asset sales and government borrowing as a heavy debt repayment schedule for state-linked companies over the next few years puts pressure on government finances.

As the Gulf emirate recovers from a burst real estate bubble it forecasts a budget deficit of up to 2 percent of gross domestic product this year. While that is very low by global standards the government will need to increase revenue in the face of its huge debt burden, analysts say.

With state-owned companies sitting on more than $100 billion in debt, some $30 billion worth of loans and bonds of predominantly state-linked firms are due to mature in 2011-2012.

State flagship Dubai World, which leads the pack of debt-ridden enterprises, now owes $39.9 billion, according to a document seen by Reuters last month, much higher than widely expected debts of mid-$20 billion.

The conglomerate is scrambling to put together a debt restructuring plan that could involve the sale of up to $19.4 billion in assets. They may also now include ports firm DP World, whose debt was previously ring-fenced.

“With 2010 public revenues projected at $8 billion, Dubai’s fiscal muscle seems weak compared to off-balance sheet guarantees it may have committed itself under the Dubai World restructuring proposal,” Bank of America Merrill Lynch said in a note to clients.

Bank of America Merrill Lynch estimates Dubai’s debt could be as high as 170 percent of GDP. In comparison, the debt burden of Greece, which was saved from bankruptcy by a 110 billion euro ($141 billion) bailout by the European Union and International Monetary Fund this year, is seen at 103 percent of GDP for 2010.

Dubai’s debt crisis is dragging down the United Arab Emirates’ economy, which is projected to grow 2.1 percent this year, the slowest pace in the region. Abu Dhabi is set to run a budget deficit for a second year in 2010 following its $10 billion bailout of Dubai last year.

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