x Abu Dhabi, UAETuesday 25 July 2017

Abu Dhabi buys into Dubai debt

Insight The US$5 billion lined up Wednesday by Dubai's Department of Finance was part of a $20bn bond programme aiming to prop up government entities.

The US$5 billion (Dh18.36bn) lined up Wednesday by Dubai's Department of Finance was part of a $20bn bond programme aiming to prop up government entities that borrowed heavily and ran short of cash after the financial crisis. Dubai raised the first $10bn under the programme in February from the Central Bank. The Dubai Financial Support Fund (DFSF) was established in July to administer the distribution of the cash.

The announcement of another $5bn brings the total so far under the programme to $15bn. Terms of the new bonds were not disclosed, but an adviser to the Government said they were similar to those of the $10bn bond, which came with a 4 per cent interest rate and a 5-year maturity. But unlike the first bond, the $5bn yesterday came from two Abu Dhabi-based lenders, National Bank of Abu Dhabi and Al Hilal Bank. Analysts say that was the clearest sign yet that Abu Dhabi was providing assistance to Dubai through its bond programme, rather than the Federal Government.

NBAD and Al Hilal are owned by the Abu Dhabi Government through the Abu Dhabi Investment Council (ADIC), a sovereign wealth fund. ADIC owns all of Al Hilal and more than 70 per cent of NBAD. The remaining share of NBAD is listed on the Abu Dhabi Securities Exchange. "It shows the cohesiveness of the federation and Abu Dhabi coming to back up and support Dubai," said Abdul Kadir Hussain, the chief executive of Mashreq Capital in Dubai. "In those respects it's all positive."

But some questions remain over the sources and timing of the remaining $5bn under the programme. Many observers had expected Dubai to raise all of the $10bn in one swoop, but now believe the rest will come later this year or early next year. "It does raise the question when the full amount will be made available," said Phillip Lotter, an analyst at Moody's Investor Service in Dubai. "But it is generally positive."

While the Dubai Government has not said how the bond proceeds are being distributed, construction companies hope the latest injection of cash into the economy could help developers that have struggled during the crisis. Property prices in Dubai have been some of the hardest hit in the world, registering declines of more than 50 per cent in some areas, a Deutsche Bank report says. The $5bn bond is to be split equally between NBAD and Al Hilal. Each bank has already provided $500 million to the DFSF, and Abdulla al Otaiba, the general manager of corporate banking at NBAD, said Dubai was expected to draw down his bank's remaining $2bn over the next year, as it needed.

* with additional reporting by Angela Giuffrida and Uta Harnischfeger