Dubai raises $2.8bn

Travis Pantin

• Last Updated: April 05. 2009 9:48PM UAE / April 5. 2009 5:48PM GMT

The Dubai Electricity and Water Authority (DEWA) and the Dubai Government have raised US$2.8bn (Dh10.28bn) from local and international banks to repay debts, signalling that a drought of credit could be easing.

Over the past six months, international banks have grown reluctant to refinance debts, creating a cash shortage that has delayed infrastructure and property projects and sparked widespread job losses.

But recent assurances of Government support for the companies have brought international lenders back to the table.

The Dubai Government raised $600 million through a syndicated loan facility to pay off part of an existing $1bn debt owed by its civil aviation department, which was due this month.

The remainder of the debt will be repaid by the Dubai Government, it said, marking the first official injection of government money into a Dubai company since the Federal Government lent the emirate $10bn in February.

“It’s comforting that the Government has stepped in. It’s a positive event,” said Fahd Iqbal, the vice president of equity research at EFG-Hermes.

DEWA secured a $2.2bn loan from 18 international and local banks, without recourse to government funds, to refinance an expiring loan, it said. Last week, its chief executive said the new debt would include Islamic and conventional elements.

“As far as DEWA is concerned, it’s a job well done that they managed to attract the full amount via the banks,” said Philipp Lotter, a sovereign debt analyst at Moody’s Investors Service.

“It highlights that the right type of issuers, even with the name Dubai in their title, are able to attract the funding that they need. I think the right kind of issuers, with the right kind of business models, are going to attract funding.

“The assumption that no company will be able to refinance anything over the next few months is flawed.”

Dubai companies need to repay $10bn in debts this year, according to the ratings agency Standard & Poor’s.

In February, the Central Bank said it would buy half of a $20bn bond issued by Dubai to provide the emirate with enough money to ensure local companies were able to meet debt obligations.

Dubai has hired Rothschild, the investment bank, to advise on which local companies should receive the emergency funds and on what terms.

The first loan was taken out in 2006 by the Dubai Department of Civil Aviation (DDCA), but this body was dissolved when the Government separated its regulatory and management functions for airports within the emirate, including Dubai International Airport and Al Maktoum International Airport, which is under construction in Jebel Ali. This explains why the loan was refinanced by the Government. The duties of the DDCA’s regulatory arm were taken on by the new Dubai Civil Aviation Authority (DCAA).

Companies associated with the infrastructure sector are expected to be among the most likely to receive immediate help from the Government this year, given recent statements by Dubai officials that sustained spending will be a key part of the emirate’s plan to sustain local economic growth.

“The encouraging response received for this syndication illustrates the strong confidence of investors in Dubai’s economy,” said Nasser al Shaikh, the director general of Dubai’s Department of Finance.

“The Government of Dubai will continue to finance infrastructure projects with long-term borrowing as part of its ongoing long-term debt management strategy.”

Last week, an official from the Abu Dhabi Water and Electricity Authority (ADWEA) said the company might find it difficult to secure long-term financing for the construction of its new power plant and might seek government help to secure the money.

ADWEA was unable to secure financing for the plant last year as a result of the international funding shortage and was forced to take a more expensive bridging loan.

The DCAA loan will be a Sharia-compliant facility. Dubai Islamic Bank acted as the co-ordinator of the loan, which will have a profit rate of 3 per cent over the interbank rate.

DEWA said it would announce the full details of the loan on Wednesday.

tpantin@thenational.ae