UAE, Abu Dhabi roll over $20 billion of Dubai's debt

DUBAI Sun Mar 16, 2014 10:51am EDT

Construction cranes are seen near Burj Khalifa (C) in Dubai June 26, 2012. REUTERS/Jumana El Heloueh

Construction cranes are seen near Burj Khalifa (C) in Dubai June 26, 2012.

Credit: Reuters/Jumana El Heloueh

DUBAI (Reuters) - Abu Dhabi and the central bank of the United Arab Emirates have agreed to refinance $20 billion of debt that was extended to the Dubai government as emergency aid during its financial crisis and comes due this year, the state news agency said on Sunday.

The debt is being rolled over for five years at a 1 percent annual interest rate, WAM said in an official statement.

The roll-over covers a $10 billion, five-year loan which was offered to Dubai by the Abu Dhabi government through two state-owned banks, and $10 billion of five-year bonds which Dubai issued to the UAE central bank.

The agreement, which had been expected by financial markets, will enable Dubai to continue spending heavily to develop itself as a regional center for finance, trade and tourism.

Dubai, one of seven emirates in the UAE, obtained the aid in 2009 after the global credit crisis caused its real estate market to crash, threatening to force some of its state-linked firms to default on billions of dollars of debt.

The neighboring emirate of Abu Dhabi, which is the capital of the UAE and has vast oil wealth, stepped in to bail Dubai out. Dubai is now recovering strongly, with residential property prices up over 20 percent last year and its stock market .DFMGI rallying about 140 percent since the end of 2012.

This month's roll-over deal "is part of the signatories' attempts to reinforce the competitiveness of the Emirati economy regionally and internationally," WAM said. "It also reflects the positive developments that the local economy of the emirate of Dubai has seen in recent years."

Dubai's $10 billion of debt to the UAE central bank had been due to mature this month; in February, Reuters quoted sources familiar with the matter as saying an agreement to roll over that amount had been reached.

The other $10 billion of aid, extended through National Bank of Abu Dhabi NBAD.AD and Abu Dhabi's Al Hilal Bank, was due to mature in November this year.

Dubai appears to be getting considerably more attractive terms in the roll-over than it obtained during the crisis in 2009; the original bonds issued to the central bank carried a 4 percent coupon.

Some of Dubai's biggest government-related entities (GREs) are working through debt restructurings launched after the crisis, and will have to sell assets to meet repayments in the next few years.

The International Monetary Fund estimated in January that Dubai and its GREs faced about $78 billion of maturing debt between 2014 and 2017; this month's agreement takes care of more than a quarter of it.

(Reporting by Andrew Torchia; Additional Reporting by Sami Aboudi; Editing by David French/Rosalind Russell)

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Comments (1)
bababa wrote:
In its quest for making the Dubai economy well known globally and enjoy a competitive combination of cost, market and environmental advantages and create an ideal and attractive investment climate for local and expatriate businesses alike, the City State is so highly investor and banking friendly that the biggest beneficiaries are the foreign banks operating in Dubai. They have been able to make (and still making) huge profits (not withstanding the still on-going 2008-09 global financial crisis) by way of earning truck-loads of income from its customers by way of service charges, commission earned and interest income and remitting the same to their respective head office. In no other place in the Middle East region can banks make such amount of net profits. Being operating branch offices, they do not have any mandatory Basel 3 norms applicability locally. The result of all this is that the place has become highly import dependent with little industrial activities to sustain. It is no doubt an excellent service center. In fact, these advantages not only rank Dubai as the Arabian Gulf’s leading multi-purpose business center and regional hub city, but is considered at the forefront of the globe’s, dynamic and emerging market economies. Is this going to be sustainable is to be seriously studied and seen. The moot question is who is bearing all the cost.

Mar 18, 2014 5:02am EDT  --  Report as abuse
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