x Abu Dhabi, UAESaturday 20 January 2018

Dubai must raise more cash, says ratings agency

Dubai must raise more cash to meet debt obligations and pay its contractors, according to a ratings agency official.

Dubai has about US$4 billion (Dh14.69bn) left in its economic support fund and must raise more cash to meet debt obligations and pay its contractors, says a Standard & Poor's official. The emirate and its companies have an estimated $85bn in outstanding debts that have attracted the scrutiny of international ratings agencies in recent months. That has intensified as the December 14 repayment of a $3.5bn bond by Nakheel, the Dubai Government-backed developer, draws closer. Dubai launched a $20bn bond programme in February after raising $10bn from the Central Bank in a move that instilled confidence among investors that it would meet its debt obligations. But uncertainty over when and where the second half of the bond money would be distributed has dented some of that positive sentiment. "Dubai has about $4bn to support government-related entities [within the economic support fund]," Farouk Soussa, a credit analyst at S&P, said on the sidelines of a conference in Dubai. "From our point of view, that's insufficient." There has been widespread speculation about which government-related companies have already received funds from the first $10bn tranche. "We know that some of it has gone to Nakheel. But we don't know how much. At least $6bn - has been spent," Mr Soussa said. Dubai's six-year building boom ended last year, when foreign investors withdrew funds, property prices started to fall and speculators fled the market. The Central Bank in March underwrote the first $10bn tranche of a planned $20bn bond to bail out struggling companies and allow them to pay creditors. Since then, international investors have awaited news on the second tranche. At the weekend, a senior Dubai Government official indicated the Government may sell the long-awaited second tranche of the bond as early as this month. "I'm not really sure about the date, but I think October, November. Maybe that's a more reasonable date. I think it will be majority government, some private sector," Mohammed Alabbar, the chairman of Emaar Properties, said in an interview with CNN that was broadcast on Friday. Mr Alabbar is also a member of an economic task force set up to revive Dubai's finances. Mr Soussa said he expected most of the bond to be bought by either the Central Bank or the Government of Abu Dhabi. "It will be a question of pricing but the price the Government of Dubai will likely get on the market will look much less attractive than the pricing it will be able to get from the UAE Central Bank," he said. Much of the money raised from the bond programme's first tranche was not being spent on debt repayments, Mr Soussa said, but rather on the contractual obligations of Dubai-linked entities such as Nakheel, which has struggled to pay contractors. "One of the difficulties is that you have the fund supporting not only the debt obligations but also the contractual obligations of these entities," Mr Soussa said. S&P did not expect Nakheel to default on its borrowings, but other Dubai World entities may not receive the same support, he said. "Nakheel for sure we don't expect to default because all eyes are on Nakheel, so that would be a spectacular own goal." Investors yesterday took some comfort from Mr Alabbar's earlier comments as both the Dubai Financial Market and the Abu Dhabi Securities Exchange ended the day about 1.2 per cent higher. But investors are still awaiting a "firm conclusive statement" on both Nakheel and the outstanding government debt, according to Hashem Montasser, the head of regional asset management at EFG-Hermes. "The real good news would be an official response or statement," he said. * with Reuters