x Abu Dhabi, UAEThursday 18 January 2018

Dubai Group's US$10 billion debt restructuring puts behind painful memories and reduces the city's risk profile

Dubai Group’s debt deal with its creditors is expected to make it cheaper for government-related companies in the emirate to tap future borrowing.

“This will bring an end to an overhang in the market, and increase visibility for local banks involved in the restructuring. Additionally, it will show to investors that the UAE story is alive and that the macro-economic situation, both in terms of policy and asset prices, is improving,” said Fateh Tariq, the vice president of capital markets at the Abu Dhabi-based asset manager Invest AD.

“Markets in the short term already would have priced in this news. However, long-term it will be beneficial for spread compression for Dubai Inc companies.”

Last week, Dubai Group signed a US$6 billion debt agreement with all financial lenders regarding the restructuring of bank facilities. A further $4bn of related party debt has been subordinated to the claims of the bank creditors. Under the deal, lenders agreed to extend maturity dates to December 31, 2016, for secured facilities and to December 31, 2024, for partially secured and unsecured facilities.

“This successful conclusion is an important milestone towards our future and long-term financial stability,” said Fadel Al Ali, the newly appointed chairman of Dubai Group. “We are confident that this restructuring, combined with the improving market conditions and asset valuations, will provide us with an excellent platform to move forward.”

The agreement is the latest sign that Dubai is rebounding from a debt crisis that had once threatened the emirate’s economy and adds a feather to the cap of a city already riding high on rising housing prices and the Expo 2020 win.

“It concludes one of the last large restructurings for Dubai Inc that could have had negative systemic implications had the deal had not been consensual, which should further support the positive sentiment on Dubai and reinforce the view that Dubai’s economic fundamentals are strong and can support such a restructuring,” said Mohieddine Kronfol, the chief investment officer for global sukuk and Mena fixed income at Franklin Templeton Investments.

However, the progress Dubai has made will be further tested in the months ahead as the emirate faces about $48bn of debt maturing this year and next, Standard Chartered bank estimated last year.

Among the upcoming maturities are two Dubai sovereign sukuk maturing in November and valued at $1.25bn and Dh2.5bn, respectively.

But the largest maturity this year relates to $20bn Abu Dhabi lent to Dubai at the height of its debt crisis. That sum includes $10bn from the Central Bank and $5bn each from National Bank of Abu Dhabi and Al Hilal Bank.

Bank of America Merrill Lynch analysts said last week they expected Dubai to finalise the refinancing of the Central Bank $10bn bond in the “next month or so”.

In a report in November, Barclays said it expected the entire $20bn to be “rolled over”.

And in May 2015 Dubai World will have $4.5bn of repayments due related to its earlier restructuring. It has already made steady progress in raising funds with its unit Istithmar World last month selling the Atlantis Hotel in Dubai and its 50 per cent stake in Miami’s Fountainebleau Hotel.

Analysts expect much of the rest of the debt to be either repaid in full or refinanced at more favourable terms for the companies.