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New Abu Dhabi debt policy to cut risks

Abu Dhabi

The document introduces centralised mechanisms to manage debt and restraints on borrowing by quasi-sovereign bodies.


October 24, 2012 5:38 by

An official document clarifying ultimate responsibility for new debt issuance by Abu Dhabi’s government-related entities aims to eliminate any risk of a Dubai-style debt crisis in the emirate.

The document introduces centralised mechanisms to manage debt and restraints on borrowing by quasi-sovereign bodies. But it does not change the level of state support available to Abu Dhabi’s key development vehicles, bankers and analysts said.

The document, dated Aug. 7 and delivered to state-owned entities by the Executive Council, which assists the ruler of Abu Dhabi, says the government will only be responsible for debt formally guaranteed by the council or Abu Dhabi law if the borrower is unable to meet its obligations.

Entities obtaining a council guarantee must obey financial standards and report their performance against them to the emirate’s Department of Finance on a half-yearly basis.

However, the document added, the Executive Council has the ultimate say over all debt issuance, and can issue a guarantee even if an entity’s finances do not meet the targets.

Major government-related entities (GREs) in Abu Dhabi include Mubadala Development Co, International Petroleum Investment Co and Abu Dhabi National Energy Co.

These firms have ramped up their public borrowing in recent years as part of an expansion drive aimed at diversifying Abu Dhabi’s oil-dominated economy, which has seen them take stakes in the likes of Daimler and UniCredit among other investments.

Overall GRE debt in the United Arab Emirates stood at $185 billion or 51 percent of gross domestic product last year, with Abu Dhabi accounting for over 54 percent of the total, the International Monetary Fund said in May.

The document says annual debt issuance from Abu Dhabi, which sits on 7 percent of the world’s proven oil reserves, and its GREs should not exceed 5 percent of expected nominal GDP.

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