We could all do with a bit of good news amid the continuing carnage in the global economy in the wake of the COVID-19 pandemic.

Dubai supplied it earlier this week in the form of an announcement that it had repaid the last tranche of debt left over from the 2009 existential threat at the height of the global financial crisis.

Anybody who was involved in the tense situation back then will remember the atmosphere well. Dubai World, one of the main government-owned conglomerates, found it could not repay a relatively small sukuk – about $4 billion – and suddenly the whole of its liabilities, and those of the emirate, were at risk of default.

Dubai’s total debt was somewhere above $100 billion (though never exactly specified), of which Dubai World was responsible for roughly half. The conglomerate announced it was “standing still” on $26 billion of its liabilities, which would be restructured and renegotiated with its lenders.

Immediate cash requirements were satisfied via a $20 billion injection into Dubai from the UAE capital Abu Dhabi, but there was still much work to do.

Bankers and advisers spent the best part of a year in talks — punctuated by emergency helicopter trips between the two UAE cities — before they were able to announce a deal that would extend terms and repayment of Dubai’s liabilities.

It had come very close to the edge. Fragile global financial markets had crashed as Dubai’s problems looked set to trigger a wave of sovereign debt defaults. The UAE economy and financial system was badly affected. In the end, Dubai was “standing still, but still standing,” as one headline of the day put it. But it had been a near-run thing.

Ten years later, Dubai World — still under the chairmanship of Sultan Ahmed bin Sulayem — was able to announce that it had repaid the final $8.2 billion of the debts, two years ahead of the agreed schedule to a range of 47 international and regional creditors.

Mohammed Al-Shaibani, who was called in as a “fire fighter” in 2009 and is also on the board of Dubai World, called the early repayment a “milestone.” But it has more than symbolic significance.

The early payment has been enabled through the use of the emirate’s own funds, dividend payments from the portfolio companies that together make up “Dubai Inc.,” and a loan from Dubai Islamic Bank.

It has also been facilitated by the transaction earlier this year that saw the global ports operator DP World brought back under government ownership, which allowed it to provide some $5 billion to its owner, the Dubai World group.

Dubai has proved that it is sophisticated and resourceful in its approach to financial issues, and — more importantly — that it is as good as its word when it comes to dealing with global capital markets.

That is a quality that will stand it in good stead in the post-pandemic environment. The UAE — similar to the rest of the world — has suffered because of the economic impact from the lockdowns caused by the COVID-19 health crisis. The International Monetary Fund (IMF) said this week that the GCC economies would shrink by 7.6 percent this year. The UAE announced yesterday that gross domestic product (GDP) had already fallen 3.5 percent in the first half.

Dubai has diversified faster than other regional economies away from oil dependency, but its expansion has been in exactly those areas most heavily affected by the global lockdowns –—aviation, trade tourism, and leisure.

At some stage, Dubai will probably have to return to the capital markets to ease its way through the economic recession that is already upon us, and which could get worse.

The credit ratings agencies and economists have warned that Dubai will likely want to restructure some of the government-related debt still on the emirate’s balance sheet, which according to the IMF has remained high in global terms as a proportion of its GDP. A large amount of debt falls due by 2023.

The early repayment of Dubai World debt will be a useful reference in those negotiations, and help it to avoid the need to seek credit from non-financial lenders, should the need arise.

• Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai

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