• Home
• /
• Local business

Dubai can Manage Liquidity
if Dewa Delays Spending Plan

DUBAI - The government of Dubai would have enough cash available to meet the short term needs of all distressed parts of the economy if Dubai Water and Electricity (Dewa) were to delay its $19.1 billion capital expenditure plan, investment bank EFG-Hermes said on Sunday.

Dubai’s state-owned utility plans these huge investments between 2008 and 2012 to feed the emirate’s growing appetite for power and water.

Dewa requires $2.2 billion to refinance some of its debt by April 13. Of Dubai’s four large debt obligations repayable during 2009-10, only Dewa’s is due in the short term, EFG-Hermes said in its latest research note.

“The amount of refinancing could change if Dewa confirms a delay in capital spending plans for this year. The remainder of the debts will mature between December 2009 and June 2010. This leaves ample room for the Dubai government to inject liquidity over the short-term into those sectors of the economy facing distress, primarily real estate and construction,” the report said.

EFG-Hermes, the largest investment bank in the region, has maintained that the Dubai government ought to utilise the full $20 billion of its bond programme launched last month, referring to the views voiced by Nasser Al Shaikh, the Director-General of Dubai’s Department of Finance, that the Dubai government would not require the second $10 billion tranche of the bonds.

In what it said was an optimistic scenario based on Al Shaikh’s assumptions, the investment bank estimated that Dubai needed to refinance loans andbonds in excess of $1.5 billion maturing over 2009-10. “Such loans amount to $10.3 billion in aggregate and including associated interest payments also, the liability increases slightly to $10.7 billion,” the bank said,revising downward Dubai’s refinancing needs.

“Based on the relaxed assumptions, it would appear the Dubai government could indeed give assistance to government affiliated entities to the scale of half to two-thirds of overall debt obligations. The critical assumption is that the other borrowing entities will not face any difficulties in either rolling over existing loans or in meeting repayment obligations,” the bank.

“For loans and bonds that are less than $0.5 billion in size, we believe this is a fairly realistic assumption to make, though such an assumption may not necessarily hold true for loans ranging from $0.5-1.5 billion,” it said.

EFG-Hermes estimated last month that Dubai’s total debt would incur repayments of $16.4 billion in 2009, $9.8 billion in 2010 and $19.0 billion in 2011. It also had put Dubai’s total debt obligations at $62.9 billion, with an additional $11.4 billion from companies in which the Dubai government has a minority holding.

“Specifically, we would look to see the amount of time taken to finalise the refinancing, the amount of debt that is rolled over, the interest rate on the loan, and most importantly the level of government assistance which is required,” said EFG-Hermes.

The banks that joined in lending to Dewa last year included ABN Amro, Badr Al Islami, Barclays Capital, Calyon, Dubai Islamic Bank, Emirates Bank International, Fortis Bank, Intesa Sanpaolo, Lloyds TSB, National Bank of Abu Dhabi, Samba Financial, and Standard Chartered, EFG Hermes said.

· issacjohn@kahleejtimes.com