Dubai opts to refinance US$10bn to avoid defaults

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Building of skyscrapers has come to a grinding halt in Dubai due to the global recession and its effects on the UAE economy. Dubai World, owner of several skyscrapers in Dubai, reached an agreement with over 99 percent of its creditors by value to restructure around $24.9 billion of liabilities last year. Photo - Mosab Omar/Reuters

Dubai plans to restructure its $10bn debt as it faces hardships in repayments. It is also considering other options such as raising $2bn in funds from local banks. About $3.8bn is maturing next year and government needs to meet these obligations.

Dubai was in deep crisis two years ago when it avoided defaults with the help of $20bn in loans from Abu Dhabi emirate. The government has sought to negotiate with banks for loan extensions, while opting for making full repayment to bondholders.

A Dubai official said state-owned funds would buy distressed assets of other state-related entities at above-market rates in order to prevent default. The government would also invoke a law, Decree 57, to help restructuring of $25bn debts of troubled conglomerates.

Dubai Holding Commercial Operations Group has a $500m bond due in February; Dubai International Financial Centre Investments has around $1.25bn Islamic bond due in June; and Jebel Ali Free Zone has a $2bn Islamic bond due in November.

Moody?s estimates the emirate?s overall debt exposure at $101.5bn, of which state-related companies account for $68.6bn. According to Moody?s, Dubai still faces a risk of not meeting its debt obligations next year despite an economic revival in trade and tourism. Moody?s report, which would be made public on Tuesday, warns that any default would hamper investor confidence and also Dubai?s ability to fund core activities.

Sources: Business Intelligence, Financial Times

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