The worst seems to be over for Dubai World a year after it announced it would have to restructure US$24.9 billion of its liabilities.
Dubai prepares for next debt challenge
A year after the trauma of Dubai World's announcement that it was to restructure US$24.9 billion (Dh91.45bn) of liabilities, the emirate can look back with some satisfaction that its most serious financial threat has been neutralised.
But it must also be aware there are still difficulties to overcome in other parts of the complex corporate infrastructure of Dubai Inc.
"Progress made but challenges remain", was how the situation was summed up by the US investment bank JP Morgan in a recent study of Dubai's debt situation.
"For all the recent positives in the form of the near-conclusion of Dubai World's restructuring and successful fund-raising by the Dubai Government, the emirate still has looming debt maturities to tackle at a number of quasi-sovereign enterprises."
Debts amounting to $16.44bn are due to be repaid by the end of next year, the bank estimates.
On the plus side, the successful conclusion of negotiations with Dubai World's creditors, in a relatively short space of time for such a complicated financial restructuring, was a fillip for the emirate's financial self-confidence.
This was proved by the recent re-entry of Dubai into international sovereign and corporate debt markets. A $1.5bn bond issue by the Government was healthily oversubscribed and debt issues by other Dubai entities, such as the ports group DP World and the utilities provider Dubai Electricity and Water Authority, were also welcomed by the international markets.
Credit default swap rates - the most reliable indicator of financial health as judged by international investors - have fallen since the highs that followed last November's announcement and are now some 35 per cent lower.
"We remain convinced of the substance of the UAE economy and view Dubai as having no regional peer as a service hub," said Simon Williams, the chief Gulf economist at HSBC.
The emirate still faces challenges, however, chiefly related to the property market, where prices have continued to fall, and the drag effect it has on the overall economy and the financial sector.
Immediate attention is focused on the situation at Dubai Holding, the property and financial conglomerate owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai.
Two weeks ago Dubai Group, the financial arm of the holding company, announced it had appointed co-ordinating committees of its creditors to discuss its debt obligations after reports that it had missed repayments on some big loans.
"This re-awakened the markets concerns about Dubai Inc's debt situation and reminded everyone the saga is still far from over," said JP Morgan's Zafar Nazim.
Dubai Holding insists the group is not involved in a general restructuring and that the term applies only to two parts of the conglomerate: Dubai Group and the private equity unit Dubai International Capital.
Both have asked for, and received, the agreement of their creditors to extend the terms of financial obligations. JP Morgan calculates there are five different credit facilities relating to the two businesses, totalling $4.7bn. The extension runs out at the end of this month.
The prospects for Dubai Holding Commercial Operations Group (DHCOG), which includes the Jumeirah hotels business and the TECOM business parks operations, are more comfortable, the group believes.
A $555 million revolving credit facility (out of total debts of $4.1bn) has been rolled over twice while DHCOG talked to the three banks involved, Citibank, Royal Bank of Scotland and Standard Chartered. JP Morgan said it was still unclear whether the refinancing would be completed by the deadline at the end of the month.
Other big debts due for maturity in the next year or so include $4bn at Investment Corporation of Dubai, regarded as the most solidly asset-backed of the emirate's entities.
Borse Dubai with $2.5bn and Dubai Aerospace with $800m are also due for repayment.
In addition, there is a further $4.4bn from Dubai World entities, excluded from last year's restructuring, due by the end of next year.