Dubai in move to borrow $6.5bn

Uta Harnischfeger and Wayne Arnold

• Last Updated: October 26. 2009 4:10PM UAE / October 26. 2009 12:10PM GMT

Dozens of bankers and fund managers attended Sunday’s presentation by Dubai, which was led by top officials from the Department of Finance. Jeff Topping / The National

DUBAI // Dubai is preparing to plunge back into warming global capital markets with plans to borrow as much as US$6.5 billion (Dh23.86bn) to ease the burden of its estimated $85bn in debt.

After meeting last week with investors in Asia, officials from the emirate circled home for a presentation at the Fairmont Hotel in Dubai Sunday. They head next to Europe for the final leg of a week-long tour aimed at gauging investor appetite for lending to Dubai and the companies it controls.

Dozens of bankers and fund managers attended Sunday’s presentation, which was led by top officials from the Dubai Department of Finance, including the director general Abdulrahman al Saleh, as well as Marwan Abedin, the chief executive of the Dubai Financial Support Fund (DFSF). The DFSF is in charge of the $10bn rescue of Dubai’s Government-controlled companies.

Faisal Jasim, the head of strategy for the Department of Finance, declined to comment on the content of the meeting, but described investor reaction as “positive”.

Officials have described the trip as a “non-deal roadshow”, a listening mission with no specific fund-raising targets. But bankers in Dubai say the emirate is quietly marketing two new bond issues, $4bn in conventional bonds and $2.5bn in Islamic issues.

Not all of the bonds are expected to be sold right away, but rather over time as they are needed, said Suresh Kumar, the group director and chief executive of investment at Emirates NBD. “There is no intention to use it all right now,” he said, referring to the conventional bonds.

Instead, the government could issue the bonds as its needs the cash. Mr Kumar said the first allocation of bonds for sale would probably be priced this week.

The funds probably will be administered by the DFSF, which was set up in July to dole out the proceeds of Dubai’s $10bn sale of bonds to the Central Bank. At the time of its establishment, the Department of Finance said the DFSF would be empowered to raise funds on behalf of Dubai as needed.

More than half of that $10bn has already been disbursed and Dubai has announced plans to borrow a second $10bn. The latest fund-raising is in addition to that bond programme.

The DFSF had said it would not disclose the criteria it used for lending money, but bankers said it would be using stringent conditions designed to ensure that it could repay the money it had borrowed to the Central Bank, plus the 4 per cent interest due annually.

Economists estimated that Dubai would need to either repay or refinance $10.1bn in debts coming due next year. It will need $12.1bn in 2011, $15.2bn in 2012 and $4.8bn in 2013.

The emirate has much more urgent debts as well, not least of which is the government-owned developer Nakheel’s $3.52bn sukuk, which matures on December 14, with bondholders due to receive $4.02bn in principal and profits.

Even before that, however, Dubai faces roughly $2.4bn in other debt repayments, including a $1bn government bond that matures in 10 days. While some had worried that Dubai would be shut out of debt markets, easing credit conditions globally are allowing it to step back in. Bankers say Dubai International Capital has managed to borrow $550 million from international banks.

Any new bonds would be the first issued by Dubai since it sold Dh6.5bn in five-year bonds in April last year.

According to news reports, Dubai has issued a prospectus detailing the bond issues that includes a total figure of Dh71.3bn, or $19.4bn, for the amount owed directly by Dubai’s Government. That is only slightly less than the estimate of $20bn that economists have been using in the absence of any official tally.

* Additional reporting by Sarmad Khan

uharnischfeger@thenational.ae

warnold@thenational.ae