Volume # 03 | March, 2014

UAE Freezones Biz News Updates

Dubai to ease finance fears with $10bn debt deal

Improved terms for $10bn debt roll-over deal a sign of the revival in Dubai's fortunes after World Expo win

DUBAI is poised to roll over a vital $10bn (£6bn) debt facility with the central bank of the United Arab Emirates at a lower rate of interest, it can be revealed.
Rolling over the debt, which is due at the end of this week, will soothe lingering concerns over the emirate’s ability to service its immediate debts as it prepares to embark on another burst of infrastructure development ahead of hosting the World Expo 2020.

“The terms of the new agreement will see the facility extended at a rate of interest lower than the 4pc which Dubai had been paying on the original facility,” a senior Dubai official told The Daily Telegraph.
The bond was agreed five years ago as part of a $20bn debt programme that was partly subscribed to by the central bank based in the federal capital of the UAE, Abu Dhabi. At the time, the money was to be used to cover existing debt obligations and outstanding bills for real estate developments.

At the peak of the financial crisis some Dubai companies, known as government-related entities (GREs), which had loaded up on debt to help pay for investments or large construction projects, struggled as financing dried up globally. Some analysts have said that Dubai and its GREs still hold total debt of around $100bn.

Dubai’s financial situation worsened when it surprised markets in November 2009 saying it needed to freeze $26bn of debt owed by one of its largest GREs, Dubai World.

The news led to a slide in world markets and prompted many experts to question the sustainability of the city’s economic model of borrowing heavily to build major infrastructure.

British banks were also heavily exposed. At the time, Royal Bank of Scotland, Lloyds and Barclays were among the lenders understood to have significant exposure to Dubai. Many British investors were also caught out by a slump in the emirate’s real estate market, which saw a 50pc drop in the value of homes. Prices have since recovered along with Dubai’s broader economy.

Dubai, unlike many of its neighbours in the Persian Gulf, has little oil or gas wealth, and has instead focused on building its thriving local economy on international trade, real estate development and tourism.

Ruled by Sheikh Mohammed bin Rashid Al-Maktoum, who is also vice-president of the UAE, Dubai is the second largest economy after oil-rich Abu Dhabi in the federation of seven emirates. Each individual emirate has traditionally enjoyed large amounts of autonomy on financial matters but since 2009 the country has increasingly appeared more federal under the leadership of Abu Dhabi and its ruling Al-Nahyan family.

The Dubai Financial Market General Index is up 177pc since 2008 amid returning confidence in the emirate. Despite the strong rebound in Dubai’s economy, which grew at a rate of almost 5pc in the first half, some experts are concerned about its ability to finance future projects and signs that the property market is again overheating.

“The total cost, pace of execution, and financing of the new megaprojects remain uncertain,” said Harald Finger, head of mission to the UAE at the International Monetary Fund following his recent assessment of the country.

“If not implemented prudently, these projects could exacerbate the risk of a real estate bubble. Moreover, these projects may create additional financial risks for Dubai’s government-related entities and the banking system in light of the still considerable debt overhang from the 2009 crisis.”

Feb 18, 2014

Free Zones Of UAE

Volume # 03 | March, 2014

UAE Freezones Biz News Updates

Courtesy Telegraph Media Group Limited

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