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 Reuters

“The large implied funding gap is likely to lead to renewed pressures on Dubai and ultimately the Abu Dhabi sovereign through implicit support and increased external issuance,” said Bank of America Merrill Lynch.

Asset sales along with bond issues are Dubai’s best option to boost revenue because other measures would not generate enough cash on time to plug debt holes, analysts say.

Other prized assets that Dubai could sell in the future are the Jebel Ali Free Zone and Dubai World stakes in the Atlantis Hotel and casino operator MGM Resorts International.

“There is little doubt that the government would have to sell some of its assets to raise funds,” said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh.

Dubai’s fiscal deficit is also prompting the government to look at new ways of boosting income, such as cutbacks on fuel subsidies, municipal taxes and through various fees.

Eager to maintain its status as a low-tax business centre, however, the emirate is likely to opt for small increases in indirect taxes, leaving direct taxes unchanged and cutting spending instead. It announced last week that in the coming years new government projects would only start on merit.

DEBT ISSUANCE

A packed debt repayment schedule in the next two years could put pressure on Dubai to issue debt. If that proves difficult, the Gulf state may have to seek funds from neighbours Saudi Arabia, Kuwait or Qatar, analysts say.

“They have quite a lot of redemptions coming up for 2011 and … in 2013 and 2014, so it seems like they do have a need but it is whether or not they will be able to get an attractive yield to issue now,” said a strategist at BNP Paribas in London.

Dubai’s finance chief told Reuters last month the emirate would keep its options open about a potential debt issue later this year but was not under pressure to go to the market.

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