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UAE’s $24b Debt Redemption
for this Year ‘Manageable’

The report said UAE’s overall level of redemption for 2009, including $15 billion for Dubai, “seemed manageable.”

While the national debt dynamics for the UAE and GCC are strong, the report cautioned that lack of clarity on the exact balance sheet positions was a cause of concern.

“Clearly, there is some variance in estimates of borrowings for the region. As mentioned, we think this continues to contribute to investor apprehension about UAE risks generally. More official disclosure would therefore be welcome,” it said.

According to the report, UAE’s gross external debt was only 21 per cent of the country’s foreign exchange reserves.

The estimate of UAE’s total debt by Bank of America and Merrill Lynch fell short of the $170 billion calculated by the rating agency Fitch but exceeded International Monetary Fund’s figure of $128.8 billion.

The discrepancy in estimates arose because Fitch’s external debt study included not only corporate bonds and loans but also bank external liabilities such as non-resident deposits.

“In total, GCC countries have an estimated $40 billion in foreign debt (bonds and loans) that needs to be repaid over the remainder of this year and a further $40 billion in 2010. Adding local currency debts by stated maturity would increase the totals by $7 billion and $3 billion for 2009 and 2010 respectively,” it said,

Regarding the split between Dubai and Abu Dhabi, the report pointed out that a total $15 billion of the outstanding debt was due from Dubai issuers, representing 61 per cent of the total for the UAE this year.

“Abu Dhabi corporates make up most of the rest. There are only two loans from the other emirates, $150 million from the National Bank of Umm Al Qaiwain and $225 million from Fujairah.”

Investment bank EFG-Hermes on Monday revised upwards Dubai’s debts to a total of $74.2 billion, excluding the latest $20 billion bond issue, and said the emirate’s total obligations stood at $62.9 billion with an additional $11.4 billion from companies in which the Dubai government has a minority holding.

The total debt is projected to incur repayments of $16.4 billion in 2009, $9.8 billion in 2010 and 
$19.0 billion in 2011.

The investment bank maintained that greater disclosure quality regarding the economy, the government and its finances would help improve investor confidence and overall 
corporate governance.

It also argued that the UAE would benefit from a more formal protocol in place detailing the recourse available to individual emirates from the federal government.

“We remain of the view that the broader repercussions to the UAE economy from a high profile Dubai organisation defaulting would significantly outweigh the dollar amounts involved and could reach systemic proportions,” EFG-Hermes said.

According to the Bank of America and Merrill Lynch report, Dolphin Energy and Dubai Borse, owned by Investment Corporation of Dubai, were the biggest debtors, with respective foreign currency loans of $4.8 billion and $3.4 billion repayable this year. Borse Dubai has managed to raise $2.5 billion from a syndication of banks to refinance the loan maturing at the end of the month, while shareholders have arranged for $1 billion of the remaining amount to be paid off.

“On the bond side, Nakheel Development, one of the three main real estate developers in Dubai, has a $3.52 billion sukuk coming due in December. The size and nature of this bond has caused much unease in the market over recent weeks, increasing investor concerns around the levels of debt at Dubai Inc. entities and their ability to repay maturities coming due.”

The remaining largest maturities are from the Dubai Electricity and Water Authority with a $2.2 billion loan due in April, it said.

issacjohn@khaleejtimes.com