Thursday, Jun 14, 2012
--DHCOG repayment in February set the tone
--JAFZA refinancing follows deal at DIFCI
--Moody's had raised concerns about repayments of $3.8 billion this year
--Lighter schedule of maturities is expected next year
(recasts with analysis)
By Asa Fitch
Of ZAWYA DOW JONES
DUBAI (Zawya Dow Jones)--Dubai's improving economy has helped the emirate wade through the latest chapter in a debt crisis that began three years ago.
Dubai's Jebel Ali Free Zone is soon to sign a $1.2 billion loan to address a 7.5 billion U.A.E. dirham ($2.04 billion) Islamic bond, or sukuk, putting to rest concerns that the euro zone crisis and lingering worries about the emirate's debt burden might cause difficulties at JAFZA and two other government-related companies facing a total of $3.8 billion of debt repayments this year.
JAFZA, which oversees the industrial free zone around Dubai's Jebel Ali port, also raised a $650 million sukuk earlier in the week to help meet a November maturity on its original Islamic bond.
The refinancing is the last of several big debt deals that loomed over Dubai in 2012 and which had fed fresh worry about the emirate's business empire only a year after the state-owned Dubai World finalized a $25 billion debt restructuring. Dubai Holding Commercial Operations Group, an arm of Dubai Holding, and DIFC Investments, an investment arm of the Dubai International Financial Centre, are the other two government-related companies which have recently refinanced large borrowings due this year.
"The payment of the DHCOG bond without the need for refinancing provided the market with a positive signal and gave room to tackle the other refinancings," said Ziad Shaaban, the director of fixed income at EFG Hermes in Dubai. "DIFC managed to refinance with a loan with the help of the government, and JAFZA was able to show a good story and raised $650 million from the capital markets. Dubai is turning a corner."
Trade and tourism, two pillars of Dubai's economy, have enjoyed a rebound over the past year partly because of the U.A.E.'s stability amid Arab Spring unrest elsewhere in the region. The emirate's hotel industry showed a 24% year-on-year increase in revenues in the first quarter of this year, according to statistics from the Dubai Department of Tourism and Commerce Marketing.
"The fact that Dubai has been able to make progress, particularly with the bonds, has certainly helped external perceptions of Dubai, not just as a credit story but as an economic story as well," said Simon Williams, the chief economist at HSBC Middle East. "It's clear when we look at the real economy of Dubai some parts of it are genuinely showing real growth."
While challenges remain and Dubai is nowhere near to recapturing the dizzying growth of its boom years, Williams expects Dubai's economy to expand 3 or 4% this year, a far rosier forecast than most projections for Europe and other parts of the developed world.
Abdulrahman Al Saleh, the director general of Dubai's Department of Finance, said Thursday that the successful refinancings reflected trust in Dubai's companies and its economy.
"The fact that Jafza, DIFCI and other Dubai government related entities are capable of meeting their financial obligations on time or even before maturity date is an indication on their sound financial planning, strong status and commitment towards their investors and creditors," he said.
Ratings agencies Moody's Investors Service and Standard & Poor's late last year pointed to the debt maturing in 2012 at some of the emirate's biggest companies as a risk given the weak global economy, reduced lending from European banks due to the euro zone crisis, and volatile global markets.
In December, Moody's said that DHCOG, DIFC Investments and JAFZA "continue to face refinancing risks" in repaying their combined $3.8 billion of debt due in 2012. Dubai and its companies had a total of $101.5 billion of debt, Moody's estimated.
David Staples, the managing director of EMEA corporate finance at Moody's, said the recent completion of refinancings by the three government-related companies eased those earlier concerns.
"We saw there was execution risk because they were highly leveraged and completing any refinancing steps might be complex unless completed well in advance," he said. "In the case of (JAFZA) they've done a very good job on the execution front."
DHCOG in February repaid a $500 million bond using its own cash. Its parent, Dubai Holding, is owned by Dubai's ruler Sheikh Mohammed bin Rashid Al Maktoum.
DIFCI this month repaid a $1.25 billion Islamic bond, or sukuk, by raising a $1.04 billion loan which was partly guaranteed by the government, and by repaying the remainder from internal funds. DIFCI is owned by the government and manages a portfolio of property assets in the financial free zone as well as a range of investments including SmartStream, a financial software and transaction processing company.
Analysts say that Dubai faces a lighter schedule of debt maturities in 2013. Dubai's government-related companies have $5.98 billion of debt due next year, according to a recent IMF report, less than half of the total $12.89 billion maturing this year.
-By Asa Fitch, Dow Jones Newswires, +971 4 446-1685, asa.fitch@dowjones.com; Twitter: @ZDJnews
Copyright (c) 2012 Dow Jones & Co.
(END) Dow Jones Newswires
14-06-12 1336GMT
