Story: Dubai’s loan repayment indicates strong economy
Investment Corporation of Dubai, a holding company for many of the debt-laden emirate?s prize assets, said Monday it would repay in full $4bn of loans that mature this month rather than opt for refinancing.
Bankers said the surprise announcement was intended to send a signal to investors that the emirate was serious about cutting its still-substantial debt.
The company will now repay two three-year tranches that mature on August 21, including a $2.5bn conventional loan and a $1.5bn sharia-compliant facility, the government said. The remaining $2bn tranche of the total $6bn loan matures in August 2013.
The $4 billion is the three-year tranche of a total $6 billion deal signed in 2008. The remaining $2 billion, five-year tranche matures on 21 August 2013.
?Today?s announcement demonstrates that as part of the government of Dubai, ICD is committed and able to meet its debt obligations,? Mohammed Al Shaibani, executive director and chief executive of ICD said in a statement.
A government official said: ?There is no external funding involved.? The debt would be repaid from ?internal sources derived principally from cash dividends received from ICD?s operating subsidiaries?.
Strong performing economy
Secretary-General of Dubai Economic Council (DEC) Hani Al Hamli said the announcement of Dubai Government to repay in full $4 billion (Dh14.7 billion) of debt maturing later this month from internal sources sends a strong signal that Dubai is able to honour financial commitments and at the same time go on with development projects.
The repayment indicates strong performance by Dubai’s economy, reported WAM.
Monday’s announcement, issued by Dubai’s government media office, comes as world markets are slumping following Standard & Poor’s one-notch downgrade on Friday of the United States’ credit rating.
“The achievement is the outcome of excellent performance by Investment Corporation of Dubai,” he added.
ICD holds about $70 billion in assets and it owns stakes in companies including Emirates Group ? known for Dubai?s flagship airline Emirates ?Emaar, the largest property developer in the United Arab Emirates by market value, and several UAE banks.
The government did not specify on Monday how much cash would be used from ICD?s various subsidiaries.
ICD?s holdings have had mixed fortunes of late. Emirates Airlines has been buoyant as net profit grew 52 per cent to $1.5bn in the year to the end of March on passenger demand and capacity growth.
However, Emaar reported a 69 per cent fall in second-quarter net profit.
Abdul Kadir Hussain, chief executive of Mashreq Capital in Dubai, said: ?If it is a true form of deleveraging ? that they haven?t borrowed from somewhere else to pay this down ? then that would be a significant positive.?
This announcement has definitely increased confidence in Dubai’s economy.
Less than two years ago, foreign investors turned their backs on Dubai, the tiny desert city-state with grand ambitions built on massive debt, after state-conglomerate Dubai World announced it would restructure about $25 billion in debt.
The emirate has struggled to rebuild its credibility since, with estimated refinancings of about $30 billion to 2012.
Dubai has benefited from recent unrest in the Middle East?as investors and tourists seeking a haven have boosted the non-oil economy.
The?announcement came as a surprise?to the market after bankers and officials said in June that an agreement had been reached to refinance $2.8bn of the loans and repay only $1.2bn.
Chavan Bhogaita, head of markets strategy at National Bank of Abu Dhabi, said: ?This decision should help mitigate concerns in the market about Dubai?s cash reserves and access to funding in general. Overall, it?s a very positive development indeed.?
Two years ago, Dubai was forced to seek external funding from Abu Dhabi, the oil-rich capital of the United Arab Emirates, which lent it $20bn as its holding companies struggled to repay debt. Dubai World, another state-owned holding company which sought to alter terms on about $25bn of debt, signed a final deal with creditors in March.
Dubai and its state-linked companies still have $31bn of debt maturing this year and next, according to the IMF, out of a total debt burden of $113bn across state-owned and government-related entities.
Although progress is being made on restructurings in Dubai, Limitless, a real estate developer controlled by Dubai World, received a fifth extension on a $1.2bn loan on Monday, according to Bloomberg
Sources: FT, kippreport, emirates 24|7