UPDATE 3-Dubai agrees roll-over of $10 bln crisis debt to UAE

Wed Feb 19, 2014 10:40am EST

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* Debt was to mature next month

* Roll-over was widely expected in markets

* Rate below original 4 pct, for "a minimum of 10 years"

* Will let Dubai keep spending on Expo, infrastructure

* No word on another maturity of up to $10 bln in November

By Mirna Sleiman and David French

DUBAI, Feb 19 (Reuters) - 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 told Reuters on 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 named because the matter has not been formally announced.

The previous bonds carried a 4 percent coupon; the sources said the debt would be rolled over at a lower rate. One said the roll-over would be for "a minimum of 10 years", but declined to give further details.

In a brief statement, the central bank said it was too early to talk about the bonds because they had not expired yet. It did not elaborate, and government officials declined to make any public statement.

The roll-over, which had been widely expected in financial markets, will enable Dubai to continue spending heavily to develop its infrastructure and market itself as a regional centre for finance, trade and tourism.

Last November, the emirate won the right to host the 2020 World Expo. The government has said it expects infrastructure spending for the event to total some $6.8 billion; overall Expo-related spending, including private sector projects, may reach $18.3 billion, HSBC estimated.

CRISIS LEGACY

Dubai is now recovering strongly from its crisis, thanks to a resurgent property market and its success in attracting foreign money, but it still faces major liabilities in coming years. The International Monetary Fund estimates 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 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 loads.

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

However, a repayment as large as $10 billion could have diverted cash away from investment. The fact that the debt was to a federal entity, not commercial lenders, meant rolling it over was not controversial for the markets.

"The decision to roll over, 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, regional chief economist for the 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.

Neither 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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