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Dubai agrees rollover of $10B crisis debt to UAE

File - Commercial buildings are seen across the Bur Dubai creek in Dubai, October 18, 2011. (REUTERS/Jumana El Heloueh)

DUBAI: Dubai has reached agreement on rolling over $10 billion in debt extended by the central bank of the United Arab Emirates during the global financial crisis, sources familiar with the matter said Wednesday.

The emirate borrowed the money five years ago to help the sovereign and its government-related entities (GREs) avoid default during the crisis, when Dubai’s real estate market crashed and loan markets froze.

The debt, in the form of bonds sold to the central bank, was due to mature next month.

“The deal is done,” one source said, declining to be identified because the matter has not been formally announced.

“The debt will be rolled over at better terms,” he added, without giving details of the terms or saying for what period the debt would be rolled over.

The previous bonds carried a 4 percent coupon.

Official spokesmen and other central bank and government officials in the UAE declined to comment or were unavailable to comment.

Stock markets in the UAE showed minimal reaction to the news as the debt had been widely expected to be rolled over: Abu Dhabi’s bourse ticked up 0.3 percent, while Dubai’s bourse fell 0.6 percent.

The $10 billion deal was the first move in a concerted effort to help Dubai avert a major economic catastrophe at the end of the last decade, following a debt-fueled global acquisition binge.

Dubai is now recovering strongly, thanks to a resurgent property market and booming trade and tourism industries, but it still faces major liabilities in coming years.

According to the International Monetary Fund, about $78 billion of debt held by Dubai and its GREs will come due between 2014 and 2017.

Much of this is the legacy of the crisis: payments agreed between the emirate and its lenders under multi-billion dollar debt restructurings for its state-linked conglomerates, such as a $25 billion debt reorganisation by Dubai World.

Some of Dubai’s GREs have been partially repaying some of their liabilities in recent months as local economic conditions improve and they seek to reduce their borrowing load.

Developer Nakheel, taken over by the government in 2011 as part of a $16 billion rescue plan, said last month it would repay $1.1 billion a year early.

However, Dubai was also going to find it logical to maintain its obligation to the central bank and deploy its cash elsewhere, given the large amount borrowed and the fact the debt was with a federal entity and not commercial lenders.

“The decision to rollover, rather than to reduce the outstanding sum through alternative refinancing or through partial repayment, means that the liquidity situation in Dubai remains very comfortable and should be supportive of broader Dubai asset valuations and economic growth,” said Farouk Soussa, chief economist for the MENA region at Citigroup.

In November, the Dubai government will face the maturity of as much as $10 billion of five-year bonds and sukuk which two Abu Dhabi banks – National Bank of Abu Dhabi and Al Hilal Bank – agreed to buy from the emirate as part of the crisis aid.

The banks nor the Dubai government have said how this debt will be handled, but many in the markets - including Soussa – expect it to be wholly or partly rolled over.

 
A version of this article appeared in the print edition of The Daily Star on February 20, 2014, on page 5.

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Summary

Dubai has reached agreement on rolling over $10 billion in debt extended by the central bank of the United Arab Emirates during the global financial crisis, sources familiar with the matter said Wednesday.

The $10 billion deal was the first move in a concerted effort to help Dubai avert a major economic catastrophe at the end of the last decade, following a debt-fueled global acquisition binge.

According to the International Monetary Fund, about $78 billion of debt held by Dubai and its GREs will come due between 2014 and 2017 .

The banks nor the Dubai government have said how this debt will be handled, but many in the markets -- including Soussa – expect it to be wholly or partly rolled over.


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