Dubai agrees roll-over of $10bn crisis debt to UAE

February 20, 2014 - 1:00:19 am
DUBAI: Dubai has reached agreement on rolling over $10bn in debt extended by the central bank of the United Arab Emirates during the global financial crisis, sources said yesterday.

The emirate borrowed the money five years ago to help the sovereign and its government-related entities (GREs) avoid default during the crisis, when Dubai’s real estate market crashed and loan markets froze.

The debt, in the form of bonds sold to the central bank, was due to mature next month. “The deal is done,” one source said.

The previous bonds carried a four percent coupon; the sources said the debt would be rolled over at a lower rate. One said the roll-over would be for “a minimum of 10 years”, but declined to give further details.

In a brief statement, the central bank said it was too early to talk about the bonds because they had not expired yet. It did not elaborate, and government officials declined to make any public statement.

The roll-over, which had been widely expected in financial markets, will enable Dubai to continue spending heavily to develop its infrastructure and market itself as a regional centre for finance, trade and tourism.

The government has said it expects infrastructure spending for the event to total some $6.8bn; overall Expo-related spending, including private sector projects, may reach $18.3bn, HSBC estimated.

Dubai is now recovering strongly from its crisis, thanks to a resurgent property market and its success in attracting foreign money, but it still faces major liabilities in coming years. The International Monetary Fund estimates about $78bn of debt held by Dubai and its GREs will come due between 2014 and 2017. 

Much of this is the legacy of the crisis: payments agreed between the emirate and its lenders under multi-billion dollar debt restructurings for state-linked conglomerates, such as a $25bn debt reorganisation by Dubai World.

Some of Dubai’s GREs have been partially repaying some of their liabilities in recent months as local economic conditions improve and they seek to reduce their borrowing loads.

Property developer Nakheel, taken over by the government in 2011 in a $16bn rescue plan, said last month it would repay $1.1bn a year early. However, a repayment as large as $10bn could have diverted cash away from investment. The fact that the debt was to a federal entity, not commercial lenders, meant rolling it over was not controversial for the markets.