Dubai sukuk brings enough for budget gap, refinancing - official

DUBAI, April 26 Thu Apr 26, 2012 10:19am EDT

DUBAI, April 26 (Reuters) - Proceeds from Dubai's new $1.25 billion, two-tranche Islamic bond provide enough funds for the Gulf Arab emirate to manage its budget deficits and refinancing plans, a senior government official said on Thursday.

Dubai priced on Wednesday a $600 million 5-year tranche at 4.9 percent and a $650 million 10-year tranche at 6.45 percent and the department of finance said the issues drew orders of more than $4.5 billion.

"This sukuk issuance provides us enough liquidity to manage our budget deficits and refinancing plans proactively," Abdulrahman al-Saleh, Director General at Dubai's Department of Finance said in a statement.

"We continue to examine ways to optimize our funding strategy by diversifying our funding options and extending maturities," he said.

Saleh noted Dubai had been able to reduce its cost of funding on the sukuk, compared to previous debt issuance of similar tenors.

The emirate is still restructuring some debt at state-linked firms, including two significant maturities in 2012 from Jebel Ali Free Zone (JAFZA) and DIFC Investments, which have to repay a combined $3.25 billion this year.

Its biggest restructuring - a $26 billion debt deal at flagship conglomerate Dubai World which rattled global markets in November 2009 - was signed in 2010.

Dubai, one of seven members of the United Arab Emirates federation, has been recovering from the depths of its 2009-2010 debt crisis helped by strong trade flows with Asia, tourism and its safe-haven status amid a wave of social unrest in the Middle East and North Africa last year.

"Investors were happy with the steps taken by the government over the last three years to counter the impact of financial crisis and prudent measures to control costs and manage its budget deficit," Saleh said.

The emirate's budget deficit narrowed sharply to 3.7 billion dirhams ($1 billion) last year, helped by higher oil income and lower spending on development projects, a prospectus for the latest sovereign bond showed this week.

That represents 1.2 percent of 2010 gross domestic product, according to Reuters calculations. GDP data for 2011 has yet to be released. A shortfall of 1.8 billion dirhams is planned for 2012, the prospectus reiterated.

Dubai's direct government debt stood at 113.6 billion dirhams ($30.9 billion) at the end of March, the prospectus also showed. However, analysts polled by Reuters in March put the emirate's overall debt including government-owned firms at an estimated $118 billion, or 144 percent of GDP.

The Gulf trade and business hub, which accounts for nearly a third of the UAE's GDP, is aiming for economic growth of 4.5 percent this year, up from an estimated expansion of more than 3 percent in 2011, Dubai's top official said in February.

But worsening of global financial conditions could make it more difficult to roll over some of the maturing debt of UAE government-linked entities, the International Monetary Fund said in March, with about $32 billion of sovereign and government-linked debt estimated to mature in 2012, of which $15 billion in Dubai.

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