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Dubai’s JAFZA in debt talks, rules out govt aid

JAFZA not looking for government support; Cannot rule out option of asset sales

December 7, 2011 12:51 by

Dubai’s Jebel Ali Free Zone (JAFZA) is confident it can refinance a $2.04-billion Islamic bond due next year without government support and it does not rule out asset sales to help raise funds, its chairman said on Tuesday.

Hisham Abdullah al-Shirawi told Reuters on the sidelines of a business forum that the Dubai World unit was in talks with “many financial institutions and others” to refinance the dirham-denominated Islamic bond, or sukuk, due in November 2012.

The JAFZA issue has been flagged by rating agencies Moody’s and Standard & Poor’s as among the most problematic of Dubai’s repayments due next year.

The sukuk is not guaranteed by the government of Dubai and bondholders are predominately local banks. Shirawi said the majority of bondholders have been informed of the refinancing but declined to give further details.

“Our discussions with all our partners and other entities have been very positive,” Shirawi said.

“JAFZA is a successful entity and I’m sure that financial institutions have enough confidence in JAFZA in order to cooperate in providing for such (refinancing) requirements,” he added.

Asked whether asset sales would be an option for the repayment of the bond, Shirawi said: “I wouldn’t say that we are pursuing that option but it will depend on the overall picture. We cannot rule out that option.”

Shirawi is also chairman of Economic Zones World, which operates technology, logistics and industrial parks as well as free zones like JAFZA, under the Dubai World Group umbrella.

“We have enough entities within the Economic Zones World to support this activity (refinancing) and we are not looking for any support from the government,” he said.

Ratings agency Moody’s said earlier on Tuesday that Dubai, which has refinanced some $41 billion in debt related to Dubai World, faces refinancing risks related to three state-linked entities next year, including JAFZA. Peer Standard & Poor’s has named the JAFZA issue as among Dubai state-linked obligations in 2012 with the greatest chance of encountering repayment issues.

A source familiar with the matter said Dubai’s sovereign wealth fund may use funds it has raised to help repay some of the debt due from JAFZA and DIFC Investments, which has a $1.25 billion bond due next year.

The free zone, located on the outskirts of Dubai along the main highway connecting the city with neighbouring Abu Dhabi, does not have large tangible assets it could sell, with much of its asset base made up of investment properties and concession rights.

JAFZA made a profit of 139.7 million dirhams ($38.04 million) in 2010, its financial statements showed, compared with 286.7 million dirhams in the previous year.

Shirawi said JAFZA’s main activities were now back on track, contributing to almost 25 percent of the emirate’s real gross domestic product.

($1 = 3.6730 UAE dirhams) (Reporting by Praveen Menon and Martina Fuchs, editing by Sitaraman Shankar)

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1 Comment

  1. MMMMMMMMMMMMM on December 8, 2011 7:48 am

    The new Dubai and JAFZ crisis:
    Banking business will be reduced by 25% in the next 12 months. Bank will therefore be certainly better off looking abroad:
    While Re-exports rose to 86 billion dirhams in the first half of the year from 69 billion in the same period in 2010. Dubai’s non-oil trade data exclude trade in its free zones. Concerns about Dubai’s liabilities have eased since state-owned firm Dubai World reached a deal last year to restructure almost $25 billion of debt. What is not said clearly is that in the restructuring exercise, there is no proper provision to service interest on timely basis. The UAE, which enjoys the world’s sixth highest per capita income of $47,400, has avoided popular unrest, which challenged governments in nearby Bahrain and Oman in February and March. Not for long as Dubai will need to repay, in all, about USD 26 billion to banks/institutions in the region. It will take them at least 8 years from now to come to a positive cash flow situation. In the mean time, banks operating in Dubai will be forced to write-off USD 2 billion/year for the next 4 years. But they as well as the banks operating there which have restructured the major loans will not admit to this. Enjoy the life in Dubai as in the next 4 years the number of banks operating in Dubai will be forced to reduce from the present 59 to 19 as the loss making banks would have left the shores by then (infact should leave soon if they are smart and wish to cut losses).


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