Dubai to refinance maturing debt by issuing bonds

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An aerial view of Dubai. Photo – AP

Dubai finance chief said on Monday plans are in place to issue a bond to refinance part of AED6.5 billion ($1.8 billion) of sovereign debt maturing in April 2013.

Abdulrahman al-Saleh, Director General of the Dubai Department of Finance, did not discuss the size or timing of any new bond or give other details, and government officials were not available to confirm his comments.

Saleh told Dubai TV in an interview: “In the past, we issued bonds to support the government’s financial strategy and finance infrastructure projects.

“In the coming period, we also have plans that need financial support in the airline industry, we have expansion plans for Dubai Airport and Al Maktoum (airport), and there is a need to refinance debt when it matures. I confirm that we are under no pressure to issue bonds for emergency situations,” Saleh also told Dubai TV.

Unrated Dubai last sold sovereign debt in April this year – a $1.25 billion, two-tranche Islamic bond aimed at covering its budget deficit and refinancing debt. A sovereign bond prospectus produced by the emirate in April showed Dubai’s budget deficit narrowed sharply to 3.7 billion dirhams last year, helped by higher oil revenue and lower spending on development projects.

Gulf bonds have rallied strongly in the secondary market this year because of downward pressure on global interest rates; Dubai names have led the rally as the emirate has made progress in resolving its corporate debt problems.

This has raised expectations that regional borrowers could take advantage of the favourable conditions by issuing debt in the near future.

Dubai’s credit default swaps, which represent the cost of insuring against default, stood at 278 basis points on Monday, their lowest level since September 2008, Markit data showed.

They tightened more than 15 bps on Wednesday, after the credit rating of state utility Dubai Electricity and Water Authority (DEWA) was raised to investment grade by Moody’s.

The trade-driven economy of Dubai, one of seven United Arab Emirates, is showing positive signs based on growth rates in various sectors during the first half of 2012, Saleh was also quoted as saying by the newspaper.

The UAE central bank said this month that Dubai might achieve gross domestic product growth of 4% or more this year.

“The GDP growth is expected to reach 4% this year and next year, we expect it to be more than 4%,” Saleh told Dubai TV.

Dubai, which lacks the oil wealth of neighbouring Abu Dhabi, was hit hard by a $25 billion debt restructuring at its flagship conglomerate Dubai World in 2009-2010 after a real estate bubble burst. Restructuring at some other state-linked entities continues.

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