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Dubai will meet its debt maturities in 2012, says report

Emirate can meet debt maturities through internal cash generation, potential asset sales and market refinancing
Dubai will overcome its debt maturities in 2012 with the help of internal cash flow, asset sale and market refinancing, said a report.

Lebanese Bank Audi analysts said in a report that Dubai is indeed likely to be able to manage the rollover of its 2012 debt maturities through a combination of internal cash generation, potential asset sales and market refinancing.

Investment bank JP Morgan also said in a report last month that Dubai's government-related entities (GREs) can pay down or refinance nearly $14 billion in debt maturing in 2012 with relative ease.

"The $14-billion wall of debt maturities at Dubai GREs next year is not nearly as daunting as the headline number suggests," JP Morgan analyst Zafar Nazim said in the report.

The Lebanese bank's analysts said that Dubai's different sectors gained from the spillover effects of Arab Spring.

"The Arab Spring has indeed diverted tourists, businesses and financial capital into Dubai while a significant headway has been made on debt restructuring in the emirate's government-related entities (GREs)," they said.

"There is no doubt that the Arab Spring of 2011 brought an influx of business, trade and human flows to the Emirates and boosted aggregate demand but the global economic slowdown and the ongoing oversupply of property are believed to be persistently weighing on the near-term economic outlook. It's within this context that international institutions have adopted moderate output and price assumptions for the year ahead. For the Emirates, regional turmoil seems to have a silver lining," analysts said in the report.

The UAE also benefited from increased investments looking for diversification within the region, along with the spillover effects of higher oil prices benefiting the economy as a hydrocarbon exporter on the background of abundant oil and gas reserves, said the analysts at Bank Audi - the largest bank in Lebanon by assets and customer deposits.

The UAE economy, according to the analysts, is recovering from previous headwinds, driven by a pick-up in trade, tourism and public spending, supported by higher oil prices. Real GDP recorded a sound 3.3 per cent growth in 2011, with nominal output regaining its pre-crisis level of $360 billion (Dh1.32 trillion).

Commenting on the financial sector, they said that the UAE is in a better posture to weather adverse shocks and global headwinds on the background of new banking sector legislation and improving domestic conditions which should help UAE-based banks to gradually overcome asset quality and loan exposure issues.

Property sector

At the property sector level, the stabilisation of the UAE real estate market conditions suggest the market has somehow bottomed out, with a potential pickup in activity in the year to come, the analysts added.

The Bank Audi analysts said that the UAE real estate sector has benefited from the economy's safe-haven status amid regional turmoil and also some internal positive factors last year.

The UAE government's decision in June 2011 to extend visas for real estate investors from six to three years, consistent drop in mortgage rates and higher oil prices all helped the property sector, resulting in property prices in some areas stop falling last year.

The government has been cutting its spending on construction related projects due to concerns about the significant oversupply in the property market, an increase in the country's financial commitments and the slowdown in global economic conditions.

Looking forward, the report said delay in handover in Abu Dhabi in 2011 will only exacerbate the volume of new supply delivered and consequently rents could come again under further downward pressure.

It also said also leasing prices in Abu Dhabi's office market fell in 2011 with some 455,750 square metres of new supply entering the market. Leasing rates for offices are expected to further slide in 2012 with some 650,350 square metres of office space expected to enter the market.

However, the analysts warned that the real estate sector is not out of the woods yet with a near term market recovery highly unlikely, putting continuing pressure on asset quality of banks.

© Emirates 24|7 2012