x Abu Dhabi, UAEThursday 18 January 2018

Dubai Holding subsidiary makes $500 million pledge on debt

Dubai Holding Commercial Operations Group has reassured investors after being named as one of three Government-related firms which Moody's have concerns over.

View of the Jebel Ali Free Zone in Dubai, one of three entities mentioned by Moody's rating agency. (Pawan Singh / The National)
View of the Jebel Ali Free Zone in Dubai, one of three entities mentioned by Moody's rating agency. (Pawan Singh / The National)

Dubai Holding Commercial Operations Group has reassured investors it will repay on time a US$500 million bond that matures next year in response to concerns from Moody’s Investors Service it faced refinancing risks.

The company was one of three Dubai Government-related firms that the rating agency said may require external support to repay their debt maturing next year.

“DHCOG will repay the $500m bond when it matures in February 2012 from its own internal cash flow,”  a DHCOG spokesperson said in an emailed statement, cited by Zawya Dow Jones. DHCOG is part of Dubai Holding, a private holding company owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai.

Overall, Dubai companies face $10bn in repayments due next year but most is expected to be refinanced or repaid without difficulty.

“Even the strongest names are finding access to the capital markets to be patchy so that adds execution risk to any refinancing initiative,” said David Staples, the managing director for GCC corporate ratings at Moody’s.

“On top of that, banks are already more cautious and more conservative in their credit standards after the last downturn.”

Dubai suffered turmoil two years ago when Dubai World, another Dubai Government-owned firm, announced a standstill on debt repayments as it began negotiations with banks. In response, the Dubai Financial Support Fund (DFSF) was set up to distribute $20bn in rescue funds from Abu Dhabi and the UAE Central Bank.

Since then, however, government firms have worked hard to clear their debts, repaying bondholders and agreeing loan extensions with banks where necessary.

But the Dubai Government and its state-owned non-financial companies still have $101.5bn of debt, estimated Moody’s.

The ratings agency said in a report out yesterday there were  “very few real signs of material and voluntary deleveraging, thus raising concerns about renewed medium-term pressures when the refinanced obligations become due, as well as Dubai’s potential renewed need for further financial support”.

Of the debt considered by analysts as the most riskiest next year, Dubai Holding Commercial Operations has a $500 million bond maturing on February 12, with a DIFCI sukuk due on June 12.

A $2bn sukuk for Jafza matures on November 12.

The bond yields are already experiencing turmoil, indicating investors may be feeling nervous about a potential repayment delay.

Jafza’s 2.991 per cent sukuk was yielding 11.99 per cent on Tuesday, up from 10.3 per cent about a month ago.

The yield on DIFCI’s 0.713 per cent sukuk has risen more than 3 per cent since the beginning last month.

“We believe it is DIFCI that is most likely to rely on direct government support in conjunction with refinancing its maturing debt obligations in 2012,” Moody’s said.

The Dubai Government is directly exposed to the investment arm of the financial free zone, having given it two loans, Moody’s said.

Meeting debt obligations is becoming more challenging as a result of recent rockiness in capital markets linked to the European sovereign debt crisis.

“There are a lot of issues in the debt workthrough. The negatives are extraneous to the region, but there’s no point denying that the situation has become more difficult, more generally,”  said Bill O’Neill, the chief investment officer for Europe, the Middle East and Africa at Merrill Lynch Wealth Management.

“The sense is that there’s a backstop – there’s support for the workthrough within the UAE on the part of the sovereign wealth funds.”

Restructuring of some government-linked firms is already under way in the emirate.


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