BLBG: Dubai May Need More Help to Repay Debt After Bailout (Update1)
By Arif Sharif and Laura Cochrane
Dec. 15 (Bloomberg) -- Dubai, the recipient yesterday of a $10 billion bailout from Abu Dhabi, has yet to convince investors it will meet all of its obligations.
Debt from Dubai state-controlled entities DP World Ltd., Dubai Commercial Operations Group LLC and Nakheel PJSC remains as much as 28 percent lower than before the emirate said on Nov. 25 it was seeking a “standstill” from creditors. Standard & Poor’s said it won’t automatically reverse downgrades made to ratings on state entities since the announcement.
Dubai’s cash needs are “not going to stop and go away,” said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh. “There is still debt that needs to be settled in 2010 and 2011.”
Abu Dhabi, the capital of the United Arab Emirates and holder of 8 percent of the world’s oil reserves, provided $10 billion for Dubai’s support fund, of which $4.1 billion was used to repay a Dec. 14 Islamic bond of Dubai World’s property unit of Nakheel. The rest of the money will help keep state-owned holding company Dubai World operational until it reaches an agreement with lenders, the government said yesterday in a statement.
At least $55 billion of Dubai and its state-owned companies’ bonds and loans are due in the next three years, Goldman Sachs Group Inc. economist Ahmet Akarli said in an e- mailed note to investors.
Bonds, Loans
Dubai, the second biggest of seven states that make up the U.A.E., and its state-owned companies borrowed at least $80 billion until last year to help turn the emirate into a tourist and financial service hub. The collapse of global credit markets led to a 50 percent crash in property prices in Dubai and drove concern some of its companies will be unable to repay loans.
Nakheel has $1.73 billion of debt coming due in the next two years, data compiled by Bloomberg show. The company’s $750 million 2011 Islamic bond rose to 67 cents on the dollar yesterday from 36 cents on Dec. 11 and was unchanged at 9 a.m. in London, according to Citigroup Inc. prices. The securities, known as sukuk, are down 24 percent from 88.25 cents on Nov. 24, the day before Dubai World asked creditors to agree to a delay in debt repayment.
The Nov. 25 announcement spurred Dubai’s steepest stock- market selloff in 13 months and Europe’s worst rout since April. Nakheel’s $3.52 billion sukuk tumbled as much as 62 percent in three days, according to Citigroup. Dubai World said Dec. 1 the restructuring would affect $26 billion of debt.
Dubai’s DFM General Index of shares fell for the first time in four days, closing 1.5 percent lower.
‘Only the Beginning’
Yesterday’s bailout was “only the beginning of a comprehensive financial realignment process which may involve asset sales, debt restructuring and liquidation of insolvent entities,” Goldman Sachs’s Akarli said. “It is clear additional aid from the U.A.E. will be needed.”
The emirate set up a financial support fund earlier this year to help state-related companies. The latest $10 billion bailout followed the sale of $10 billion in Dubai bonds to the national central bank based in Abu Dhabi in February and a $5 billion loan by two Abu Dhabi-owned commercial banks on Nov. 25.
“More damage would have been done if Abu Dhabi had not come out with these resources,” Arnab Das, the head of market research and strategy at Roubini Global Economics in London, said in an interview with Bloomberg Radio. “There is probably going to be continued implications for other issuers that are heavily leveraged who don’t have short-fire access either to refinancing or bailout resources.”
Dubai Holding
Debt restructuring by Dubai state-run companies may almost double to $46.7 billion as more of the emirate’s businesses may need help making payments, Morgan Stanley said in a report Dec. 8. Another state-owned company, Dubai Holding LLC, may join Dubai World in restructuring debt, the report said.
Abu Dhabi’s rulers “will not necessarily just bail out everyone across the board,” Sfakianakis said. “They will be selective.”
DP World’s $1.5 billion sukuk due 2017 is 8 cents lower than on Nov. 24, after rising today to 86.8 cents on the dollar, according to BNP Paribas SA prices. The $500 million of Dubai Commercial Operation Group’s dollar-denominated debt due in 2012 is 28 percent lower than on Nov. 24.
The size of Dubai World’s debt means that the restructuring would have to continue, which “could be painful,” said Mohieddine Kronfol, a managing director at fund manager Algebra Capital Ltd. That may “involve a haircut and a significant extension of loan maturity for banks,” he said.
Dubai World has about $40 billion of bonds and loans outstanding, Goldman Sachs estimated. Of that, $8 billion will be maturing in 2010, $12 billion in 2011 and $5 billion in 2012.
Dubai World may sell assets in the U.A.E. and abroad to repay its borrowings, Abdulrahman Al Saleh, director general of Dubai’s Department of Finance told Al Jazeera television Dec. 6. These are “assets belonging to the company and not the government,” he said.
To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net To contact the reporter on this story: Laura Cochrane in London at lcochrane3@bloomberg.net
