x Abu Dhabi, UAEFriday 21 July 2017

Global investor confidence on the rise over Dubai debt

The cost of insuring Dubai's debt has dropped by almost half since 2009, reflecting the progress the emirate has made to cut its debt pile.

The cost of insuring Dubai's debt against default has dropped by almost half since the peak of a crisis in 2009 as recent restructuring progress and a more positive global outlook cheer investors.

It reflects a growing faith in the emirate's ability to repay debts falling due this year.

"It's a positive sign in terms of global investor faith in Dubai," said Nick Stadtmiller, the head of fixed income research at Emirates NBD. "Going into this year there were important debt maturities coming up, particularly Jebel Ali Free Zone and DIFC Investments, and it seems progress is being made through talks ahead of repayment."

Dubai's five-year credit default swaps have narrowed to 340 basis points, after shedding 110 basis points in the year to date to reach their lowest since early August.

It is a long way from the days after Dubai World announced in November 2009 it was seeking to restructure almost US$25 billion (Dh91.8bn) in debt, when the cost of insuring the emirate's debt rocketed to 650 basis points.

The conglomerate successfully restructured its debt last year. Dubai Holding Commercial Operations repaid a $500 million bond that matured in February.

Two further developments have emerged this month. Dubai International Capital, the investment arm of Dubai Holding, clinched a deal with creditors to restructure $2.5bn of loans, it said last week. Meanwhile, Drydocks World has applied for insolvency protection at the Dubai World Tribunal as it attempts to finalise a $2.5bn debt restructuring plan.

Investors are also quietly confident of DIFC Investments' ability to repay a $1.25bn sukuk due in June and a successful outcome to the maturing in November of Jebel Ali Free Zone's $2bn sukuk.

"We believe the outlook for the possible repayment of the remaining two bonds coming due this year is favourable," Farouk Soussa, an economist at Citigroup, wrote in a research report last month.

Confidence has been underpinned by a belief that the Dubai Government will not allow any state-linked firms to fall short on obligations this year.

In December, Sheikh Ahmed Al Maktoum, the head of the Supreme Fiscal Committee, said the Government had no intention to restructure bonds this year.


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