Dubai Government scotches talk of debt restructuring

The Dubai Government has hit back at speculation that it is preparing to restructure billions of dollars of debt next year as state-owned companies battle a tough global fund-raising environment.

In a statement from Dubai's media office yesterday, Sheikh Ahmed bin Saeed Al Maktoum, the chairman of Emirates Airline and Dubai's Supreme Fiscal Committee, said that while Dubai stood by its government-owned companies, there was no truth to reports that it was on the verge of a new wave of restructurings.

Dubai has endured a series of financial restructurings at some of its biggest state-connected firms over the past three years, shaking the foundations of a boom that propelled the emirate to prominence before the financial crisis.

Dubai World, a government-owned conglomerate, last year cemented a $24.9 billion debt deal after creating the Dubai Financial Support Fund (DFSF) to help companies wade through the crisis. The DFSF was funded by $20 billion in loans and other facilities from the Abu Dhabi Government and the Central Bank.

But Moody's Investors Service, a major global ratings agency, said this week that three companies with large amounts of debt due next year may need further government support. They included a division of Dubai Holding, the Jebel Ali Free Zone Authority and Dubai International Financial Centre Investments, which together must repay, refinance or restructure around $3.8 billion of debt next year.

Total debt for the Dubai government and government-linked companies is estimated at more than $100bn.

Some debts may be refinanced next year "where necessary", Sheikh Ahmed said, but there was a difference between these normal refinancing activities and forced restructurings.

Concern about Dubai's financial position has grown in recent months because of an extended period of duress in international debt markets. That has effectively closed off the tap for refinancings, especially for countries and companies considered as risky, raising the spectre of more need for government aid.

It also comes as international banks predict a cooling economy for the UAE next year amid faltering global growth.

Growth will be 3.8 per cent this year before tapering off next year, said Jonathan Morris, Standard Chartered's chief executive for the UAE.

His comments echo similar concerns about the UAE growth rate voiced by the American investment bank Merrill Lynch amid growing signs of a slump in business activity.

Abu Dhabi's Economic Vision 2030 set out a plan for growth of 7 per cent per year until 2015, but the Government has scaled back a number of key projects this year, including the construction of the Guggenheim museum on Saadiyat Island.

For Standard Chartered the biggest concern was not the Government's retrenchment but a domino effect on companies as a consequence of decelerating growth, Mr Morris said.

"If we have a slowdown in Abu Dhabi, how will that impact contractors? If there were to be a slowdown we have to think about not the immediate impact but the second or third-order impacts as well," he said.

However, the outlook for banks was improving, driven by a strengthening job market and a gradual increase in home prices.

"Most banks are seeing retail loan books improving," he said. "There's undoubtedly a debt overhang, and some restructurings that need to be worked through. But Dubai is doing all the right stuff."

"The healing of the local economy is continuing and the work-through of the debt overhang post the crisis two years ago is proceeding," said Bill O'Neill, the chief investment officer for Europe, the Middle East and Africa at Merrill Lynch Wealth Management. "But the finance sector is still vulnerable to what's happening offshore."

Central Bank data released this week added to the sense of malaise in the UAE economy, showing that bank lending dipped by 0.2 per cent to Dh1.07 trillion (US$292.1 billion) in October.

Evidence of reduced lending came as economic indicators showed a decline in business activity for last month. HSBC's Purchasing Managers' Index for the month was 52.5, down from 53.4 in October. A reading above 50 indicates expansion; below 50 signals contraction.

ghunter@thenational.ae