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Dubai says no plans to restructure state firms’ debt

Dubai's government has no plans to restructure debt held by state-linked companies, although it is ready to support them through "various" refinancing options, it said on Wednesday.

December 8, 2011 9:17 by

The Financial Times reported on Tuesday that Dubai, which narrowly averted a bond default in 2009, had raised the prospect of restructuring some bonds, meaning lenders could lose out.

“There is no truth to reports being circulated about an intention to ‘restructure’ certain debts owed by the Dubai government companies in 2012,” the Dubai government press office quoted Sheikh Ahmed bin Said al-Maktoum, head of the higher committee for monetary policy in Dubai, as saying in a statement.

The government may look into refinancing part of the debts due by state-owned companies if necessary, but the statement did not specify how such refinancing would be implemented.

Refinancing usually involves issuing fresh debt to repay existing debt while restructuring alters the terms of debt to make it easier on the borrower.

Analysts welcomed the announcement.

“It is very positive indeed that Dubai has made such an explicit statement. They are being realistic here,” said Chavan Bhogaita, head of market strategy unit at National Bank of Abu Dhabi.

“It’s well known that Dubai Inc has a large amount of debt maturing next year and what they’re saying is effectively that they will pay down some of the debt and some will be refinanced with new debt, which is probably the best situation we could have hoped for.”

Sleiman Aboulhosn, assistant fund manager at Al Masah Capital, said that the statement would reassure the public about Dubai’s commitment to support state-owned companies.

“It looks like the worst may very well be over for Dubai, and this should have a direct effect on Dubai-based stocks,” he said.

Ahead of the announcement, Dubai’s share index ended 0.2 percent higher, while Abu Dhabi closed 0.3 percent lower, dragged down by the banking sector.

A source familiar with the matter told Reuters on Tuesday that Dubai could use money raised by Investment Corporation of Dubai, its sovereign wealth fund, to help repay $3.8 billion in bonds owed by state-linked firms which mature next year.

The Gulf Arab emirate has clawed its way back from the depths of its debt crisis, helped by an economic revival in trade and tourism and its safe-haven status amid the Arab Spring revolts, but still faces the challenge of big debt repayments.

A chunk of $3.8 billion in bonds is due next year from a trio of state-linked firms seen as having the highest refinancing risk.

Those firms are Dubai Holding Commercial Operations Group (DHCOG), part of the ruler’s private holding company, DIFC Investments (DIFCI) and Jebel Ali Free Zone(JAFZA). (Dubai Newsroom, additional reporting by Nadia Saleem and Praveen Menon; Editing by Jodie Ginsberg)

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1 Comment

  1. MMMMMMMMMMMMM on December 9, 2011 8:41 am

    The Dubai 2011 economy and the JAFZ crisis:
    Early reactions: Banking business will be reduced by 25% in the next 12 months. Banks will therefore be certainly better off looking abroad. While it is true that Re-exports rose to 86 billion dirhams in the first half of the year from 69 billion dirhams in the same period in 2010. Having said this, it may be noted that Dubai’s non-oil trade data exclude trade in its free zones. Concerns about Dubai’s liabilities may 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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