Recovering Dubai Still Faces $48bn Debt – Standard Chartered

Dubai faces nearly $50 billion of debt maturities between 2014 and 2016 but, unlike the crisis in 2009, is better equipped to handle redemptions due to an economic rebound, Standard Chartered said in a research report on Wednesday.

In the note, the UK-based lender said Dubai, propelled into the global limelight three years ago after asking for a $25 billion debt restructuring for one of its flagship investment vehicles, has made little progress on raising cash from asset sales and the emirate’s overall debt burden remains a challenge.

The report added that sovereign debt has ballooned in a very short space of time, as the government borrows to support its entities and invest in infrastructure projects, with government debt accounting for about 30 per cent of Dubai’s total debt.

However, a rebound in Dubai’s key industries – tourism, trade and logistics – and the shift away from the construction and property-driven boom which helped fuel the previous crisis will help drive sustainable economic growth and assist Dubai with the debt overhang.

“Steady economic growth should allow issuers to generate stronger cash flow, and should also help banks increase their deposit bases further – giving them greater flexibility in terms of debt rollovers,” the report said.

The report estimated that $48 billion of debt in the bond and loan markets is due to mature between 2014-2016, which includes about $10 billion in restructured debt at state-owned Dubai World and Nakheel

“Without a material improvement in either Dubai World’s or Nakheel’s financial profile, this debt could be subject to another round of potential restructuring when it matures,” the report said.

Standard Chartered also said wealthier neighbour Abu Dhabi’s future support for Dubai debt would most likely apply only at the sovereign level or strategically important government entities.

“Abu Dhabi’s support for Dubai’s debt (at the sovereign level) is likely to be in the form of new funds (if necessary) or the rollover of existing facilities. For example, we believe that the $20 billion of credit granted to Dubai by Abu Dhabi/the UAE central bank would be rolled over in 2014, if necessary.”