Bloomberg News

Dubai May ‘Muddle’ Through Debt Strategy Next Year, BofA Says

December 09, 2011

Dec. 8 (Bloomberg) -- Dubai, which was on the brink of a default in 2009, may “muddle” through a financing strategy next year as state-linked companies sell assets and refinance debt, Bank of America Merrill Lynch said.

“A perilous exercise of identifying fiscal deficit financing sources may be showing that a mix of domestic banking sector and Abu Dhabi support helped Dubai muddle through so far, and this (opaque) strategy could continue into 2012,” London- based analyst Jean-Michel Saliba wrote in a report today.

Dubai’s government yesterday denied a report that it plans to restructure debt of state-owned companies next year and said it was ready to support them through “various options.” State- owned Dubai Holding Commercial Operations Group LLC, Jebel Ali Free Zone FZE and DIFC Investments LLC, which have a combined $3.8 billion of debt maturing next year, are all facing refinancing risks and may experience “ratings volatility” as they move closer to the maturity dates, Moody’s Investors Service said Dec. 6.

The emirate, the Persian Gulf’s trade and tourism hub, was on the brink of a default in 2009 and is recovering after a $20 billion cash injection from the United Arab Emirates’ central bank, the Abu Dhabi government and its banks. Dubai and its state-owned companies, excluding finance companies, have outstanding debt of $101.5 billion and may need further financial support to meet these obligations, Moody’s said.

‘Serious Repercussions’

“While a restructuring could help some of the weaker companies obtain more sustainable capital structures, the impact on the rest of the Dubai Inc. structure will make it difficult to envisage a default without serious repercussions on the cost of debt to the various other healthy corporates in need of market access,” Bank of America said.

State-controlled companies including Dubai Holding LLC and Drydocks World LLC are still in talks with lenders to restructure debt, while Dubai World reached an agreement with creditors on about $25 billion of liabilities in March after roiling global markets in 2009 by seeking to delay payments.

The yield on Dubai’s 6.7 percent dollar bonds due October 2015 rose six basis points, or 0.06 percentage point, to 6.08 percent, the highest in more than a week, at 5:28 p.m. in Dubai, according to data compiled by Bloomberg. Dubai’s five- year credit default swaps were little changed at 445, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

--Editors: Claudia Maedler, Andrew J. Barden

To contact the reporters on this story: Shaji Mathew in Dubai at shajimathew@bloomberg.net; Arif Sharif in Dubai at asharif2@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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