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World financial institutions are confident of arranging finance for Dubai thanks to the emirate's solid economy, industry experts told Emirates Business.
This statement comes after CitigroupCitigroup
revealed it had lined up more than $8 billion (Dh29.38bn) of funding for the Dubai Government in the past few months."It is not surprising that big international financial companies want to support Dubai as its economy is strong," said Imad Awaad, Director and Head of Equity Capital Markets at NBD Investment Bank. "Dubai has a variety of revenue sources, and funds from international institutions will help all sectors to solve their financial problems. Of course Dubai's economy is a part of the world's and what affects the world will affect Dubai. But the impact on investors in Dubai and the rest of the UAE will be less than in other countries," he said.
"Dubai has one of the strongest economies in the world because it stands on strong resources," said Khaldoun Haj Hasan, co-founder and Managing Partner of Ithmar Capital. "Investors have a lot of confidence in the UAE economy and that's why global banks trust it. CitigroupCitigroup
's action must have come after detailed studies that would have given the bank the confidence to support the country."Experts also considered the announcement as a positive indicator for easing the tightness of liquidity in the global financial markets.
Ziad Dabbas, financial consultant at the National Bank of Abu Dhabi, said the CitigroupCitigroup
announcement would provide a very positive indicator for the credit rating of Dubai. "Global financial institutions had blocked loans worldwide during the past few months due to the credit crisis. This announcement is a good signal for the markets, locally and globally. The move will encourage other international banks to return to the region with strong positions. It reflects strong trust in Dubai's economy and this will ease worries of other global banks."
"Such a large credit for Dubai entities shows that their risk ratings are low and there is strong trust in their financial position. For the global financial markets, the announcement reflects new trend as US banks started to introduce more liquidity and this will reduce pressure on the markets," Dabbas added.
He also highlighted the importance of Dubai Government's move to introduce sovereign credit rating. "Due to the global credit crunch all financial institutions are applying stricter measures for credit facilities and the move by Dubai will ensure that corporations meet the requirements of these institutions to access credit."
Saket Al Jendi, a risk management expert, stressed the announcement by CitigroupCitigroup
would provide further support to the UAE markets as more banks would be willing to finance projects of Dubai companies. "The banking sector in the country is still facing some problems because the government support helped banks to narrow the gap between deposits and loans, but there is not enough liquidity to finance huge projects. The market still needs foreign funds."He also agreed that the credit rating would help increase transparency and credibility of companies operating in Dubai. "The interest margins for Dubai companies used to be about one percentage point over Libor, but recently the margins increased sharply to about 6.7 per cent over Libor. This is a very high rate because of the lack of transparency, which pushed banks to demand exaggerated spreads from companies. Dubai Government was very clear in announcing its readiness to support its companies and the credit rating will help to ease worries among financial institutions," he said.
Al Jendi stressed the importance of credit rating for companies, regardless the level of this rating. "Transparency and the availability of clear and reliable data is the real issue. This will help banks to assess their spreads for companies according to real situations in the firms and this will help companies with strong ratings get access to more credit at lower prices," he added.
Some analysts said CitigroupCitigroup
's move indicated that some international money was still flowing into the country. CitiCiti's Chairman, Sir Win Bischoff, said the financing is in line with its commitment to the UAE market in general, and reflects its "positive outlook" on Dubai in particular.By Mohamad Al Kady, Karen Remo-Listana and Asma Ali
© Emirates Business 24/7 2008
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