What do we in the UAE have to watch out for in 2011? From ongoing corporate debt issues to terrorism, here’s a round-up.
January 5, 2011 1:23 by Reuters
The cloud that still hangs over Dubai’s financial future more than a year after the Dubai World debt crisis is the main risk to watch in the United Arab Emirates. Added to that are worries about an escalation of Iran’s nuclear dispute with Western powers, a long-running territorial row with Iran, and Islamist radicalism.
DUBAI DEBT AND FINANCIAL WOES
The United Arab Emirates economy is expected to grow by 2.4 percent in 2010, the slowest in the Gulf Arab region, weighed down by large debts at many of Dubai’s state-linked firms and worries over how its government will raise badly-needed funds.
Dubai’s finances sparked concern after the global financial crisis burst a property bubble, shelving multi-billion-dollar projects and triggering thousands of job cuts.
A $1.25-billion Dubai bond issue in September 2010 marked the emirate’s return to debt markets after its November 2009 crisis. The four times oversubscribed issue challenged predictions that Dubai would have trouble tapping credit markets as the emirate and its companies climb out of a $100 billion-plus debt hole.
The emirate shocked markets when Dubai World, one of the Dubai government’s three flagship holding companies, said it would seek a delay in repaying $26 billion of debt linked mainly to property units Nakheel and Limitless, sending markets into a dive.
Abu Dhabi, the seat of the seven-member UAE federation and home to most of its oil wealth, lent Dubai $10 billion, helping to avert default on a bond issued by Nakheel.
Dubai World managed to restructure some $24.9 billion of liabilities with creditors and the company is prepared to sell prized assets including previously ringfenced ports firm DP World to try to raise as much as $19.4 billion to repay creditors.
But investors are still worried about debt troubles at Dubai Inc, as the network of state-linked firms are known, even as top officials have sought to reassure them that Dubai is back on sound financial footing.
Both Dubai Holding, a conglomerate owned by Dubai’s ruler that has debt obligations estimated at $14.8 billion, and its private equity unit Dubai International Capital, have asked for repayment delays on large loans.
The government has injected around $2 billion into Dubai Holding, and said it was ready to inject more if needed.
Dubai’s debt crisis has strained relations between Dubai, known for extravagant real estate projects, and the wealthier but more staid Abu Dhabi. The two emirates have shared the financial and political reins of the UAE since its inception in 1971, but further assistance from Abu Dhabi could boost its role, possibly upsetting a delicate power balance.
WHAT TO WATCH:
- Will Dubai’s government-linked firms be able to make their debt repayments?
- Will Abu Dhabi have to intervene further to meet any Dubai debt obligations? Abu Dhabi would prefer Dubai to stand on its own and wants to contain further spillover from Dubai’s debt into its economy and that of the federation.