Dubai debt seen at $115 bln, asset sales likely
Analysts estimate Dubai’s overall debt at $115 bln; Asset sales, then sovereign issue likely financing options; Dubai government likely to sell part of DP World stake.
October 14, 2010 5:05 by Reuters
Dubai’s debt mountain now totals about $115 billion, meaning the emirate’s flagship companies are likely to be forced into further restructurings and asset sales, according to a Reuters poll of economists and investors.
Concerns about Dubai’s massive liabilities have eased after state-owned conglomerate Dubai World reached a deal last month to restructure almost $25 billion of debt.
But worries persist about the vast sums owed by names such as Dubai Holding and property developer Nakheel.
“Although some of the high profile debt restructurings are nearly complete, Dubai still has a large amount of debt falling due in the next two years,” one Dubai-based analyst said.
Despite the restructuring over the last year of billions of dollars of debt, the median forecast given by 12 respondents estimated the overall debt of the Dubai government and its state companies at $115 billion.
Reuters polled 16 economists and investors between Oct. 5 and 13. Of the total polled, 15 responded that the Dubai government was likely to finance its debt obligations via asset sales.
“Despite the recent Dubai CDS freefall and the oversubscription on the $1.25 billion sovereign bond, Dubai remains riskier than other regional and international sovereigns,” said one investor polled.
“Looking at equities, not all of Dubai’s publicly listed companies are out of the woods yet.”
Dubai, one of the seven United Arab Emirates, sold $1.25 billion of five and 10-year bonds last month, its first sovereign offering since its debt crisis shook global financial markets in Nov. 2008.
Dubai’s five-year credit default swaps (CDS), the cost of insuring the emirate’s debt against default, were trading at 385 bps on Wednesday, down from around 634 points in February, reflecting improving investor confidence.
State-owned companies owe more than $100 billion to creditors, including $30 billion due to mature in 2011-2012.
Eleven of those polled responded that the most likely refinancing option for Dubai was the sale of port operator DP World, followed by Emirates Group or Dry Docks.
Another bond sale, or assistance from oil-rich neighbours such as Abu Dhabi, which provided $10 billion in November to avoid a default by Dubai World, were also seen as possibilities.
Analysts said there was no rush for Dubai to obtain a sovereign credit rating, as finance chief Abdulrahman al-Saleh said last month it would.
“There is no urgency on the part of the Dubai government to seek a formal rating, as they have successfully raised debt without it,” said a London-based investor.
(Polling and analysis by Shaloo Shrivastava in Chennai and Jason George in Bangalore. Reporting by Martina Fuchs. Additional reporting by Martin Dokoupil. Editing by Catherine Evans)