Q & A: How Dubai Inc can pay the bills?
Ask the Dubai Financial Support Fund
The fund, established in July 2009 to help state-owned companies, may have US$1.55 billion (Dh5.69bn) that has yet to be drawn down, estimates Exotix, based on last June's prospectus. Much of this cash may be earmarked for Nakheel, which has already benefited from a last-minute intervention by the fund to repay a $3.5bn bond that matured in December 2009. But funds could also be deployed to assist other companies facing repayments this year, including DIFC Investments and Jebel Ali Free Zone. The laws governing the fund were amended last year to allow it to support non-government entities and sell debt instruments for the Dubai Government.
Ask Investment Corporation of Dubai companies to pay bigger dividends
Dubai could look to its healthiest holding company, the Investment Corporation of Dubai, to assist its financially weaker siblings. The conglomerate that controls Emirates Airlines, Emirates NBD, Emirates National Oil Company and Dubai Electricity and Water Authority has a reported $70bn worth of assets. These companies could be called upon to generate bigger dividends for deployment elsewhere in the Dubai Inc universe. The ability of some of these companies to pay more into the central pot has improved this year as the emirate benefits from rising tourism. In addition, Law No 35 of 2009 requires surplus cash from government departments and state-owned enterprises to be transferred to the Dubai Treasury.
Ask the banks to help
The banking sector in Dubai enjoys significant support from the Government and has already been utilised to assist indebted companies within the Dubai Inc family. Emirates NBD, the largest bank by assets in the UAE, was forced to merge with Dubai Bank last year for exactly this reason. A recent Moody's report notes that Dubai Government officials often "sit on both sides of the table". Exotix estimates the country's banks have an average capital adequacy ratio of about 21 per cent - higher than most of their Gulf peers. To date they have grabbed the sharp end of impairments arising from some corporate restructurings while bondholders by comparison have been largely paid on time.
If all else fails, look outside
Abu Dhabi has been considered the emirate's lender of last resort since the 2009 crisis. It is far from certain that a similar intervention would happen as Dubai benefits from an increasing number of domestic solutions to its debt challenges. Moody's believes that any future financial assistance is more likely to be extended to the Government of Dubai directly rather than a specific entity and that such assistance would come with "some conditionality attached to prevent moral hazard". Finally, the consequences of a high-profile Dubai Inc default or restructuring would have ramifications not just for other Dubai companies but also for Abu Dhabi's government-related entities.