Dubai’s government redeemed 3.3 billion dirhams ($898 million) of bonds due in April and said it was committed to repay obligations on time as it faces what Moody’s Investors Service described as a “debt wall” in 2014.
The repayment “strengthens the government’s resolve to honor all its financial obligations on time,” Department of Finance Director General Abdulrahman Saleh Al Saleh said in an e-mailed statement. The bonds were issued under the emirate’s 15 billion dirham medium-term note program in April 2008. The government and its entities have $31 billion of debt due next year, according to International Monetary Fund data.
Investor confidence in Dubai has improved after three state-linked companies paid or refinanced $3.75 billion of debt in 2012, helping the emirate’s bonds rally. The economy is set to expand at an average rate of 4.6 percent between 2012 and 2015, more than twice the average of the previous four years, according to government forecasts. The benchmark stock index has surged 34 percent this year.
“Dubai’s economy is showing some strength, and that indicates higher potential for the government to manage its debt,” said Tariq Qaqish, head of asset management at Dubai- based Al Mal Capital PSC. Still, “Dubai has a lot to repay,” he said.
Moody’s said in March that Dubai, which almost defaulted on debt in 2009, faces a “pivotal year” in 2014 when $20 billion of direct government debt becomes due.
The emirate’s credit default swaps, which at 192 basis points are at the lowest since 2008, are still 127 basis points higher than the contracts of Abu Dhabi, its oil-rich neighbor, according to data compiled by Bloomberg.
“Even though the repayment will have an impact on investor confidence, it doesn’t reduce the emirate’s risk,” said Qaqish. “There’s a long way between repaying 3.3 billion dirhams and the billions of dollars outstanding.”
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