Dubai Inc bondholders should look to the beach and not the boardroom as US$13 billion (Dh47.75bn) in debt comes due this year.
The tourist dollar is just one reason why the impending wall of debt facing the emirate is looking much more manageable.
Dubai welcomed 9.3 million hotel guests last year, duty free sales are at record highs and the malls are bustling. The rebound is helping to bring fresh confidence to credit markets and supporting the price of bonds of even some of the most indebted government-related companies. The question now is how they will benefit from that trend when their debts come due in the months ahead.
"Dubai retail sales, tourism, logistics and hotel occupancy numbers are all up," says Ghassan Chehayeb, a credit analyst at Exotix. "These are very strong positives."
There are less than 90 days to go before Dubai Inc faces its next big test when DIFC Investments (DIFCI) must repay a $1.25bn Islamic bond. It is one of three companies that have concerned investors most this year. The other two are Dubai Holding Commercial Operations Group (DHCOG) and Jebel Ali Free Zone (JAFZ). Dubai Holding successfully repaid its $500 million bond on February 1. One down and two to go.
Dubai tourism figures out last week showed the number of hotel guests rose 10 per cent last year. Tourists stayed longer and spent more, the numbers reveal - generating some Dh16bn in revenues for the year - an increase of 20 per cent.
The property market, while still depressed, is also starting to show signs of stabilisation and even recovery in some segments. It has encouraged developers including Nakheel and Emaar to begin marketing new projects some three years after property prices declined. Dubai Duty Free notched up its best year yet last year, with a 15 per cent rise in turnover to Dh5.3bn as more passengers visited the emirate or broke their journey there. It expects that to double over the next six years.
But it is not all sun, sea and gift-wrapped duty free presents for Dubai's indebted conglomerates that spent billions of dollars on assets from Cirque du Soleil to the QE2 during the boom years of easy credit. Political tensions over Iran, the opaque nature of some Dubai government-related entity finances and negative equity in parts of the property sector could trigger further shocks to the market.
The restructuring of Drydocks World's $2.2bn debt burden is also a concern. Last week Monarch Alternative Capital, a US hedge fund, won a $45.5m case against Drydocks, which is owned by Dubai World. That put the $2.2bn restructuring proposed to creditors last week by Drydocks in jeopardy.
Yet the falling yield on Dubai Government bonds since the beginning of the year suggests these factors have yet to worry investors in a serious way.
"Last year was a good year and this year continues to be a good year, which has been helpful to the Government and some key core economic sectors," said David Staples, the managing director of corporate finance at the credit ratings agency Moody's in Dubai. "Our concerns with JAFZ and DIFCI has to do with execution risk and the pool of liquidity to support any refinancing."
The memory of Dubai World's November 2009 debt standstill is fresh in the minds of many investors as DIFCI and JAFZ confront a potential shortfall as their debt repayment deadlines loom. Back then, Abu Dhabi stepped in to provide financial support. More than two and a half years on, Dubai Inc has more options to balance its books.
Exotix estimates DIFCI and JAFZI may need assistance of some $1.4bn to meet their upcoming obligations. This could come from one or a variety of sources, including the Dubai Financial Support Fund, sovereign bond sales, Dubai's own banks or the Investment Corporation of Dubai (ICD) - the jewel in the Dubai Inc crown.
"Dubai has a lot of tools at its disposal," says Mr Chehayeb. "It is not as simple as just receiving assistance from Abu Dhabi. It has a lot more resources than people assume. It's got control over its local banks, it's got some healthy companies that are producing attractive dividends and it's got Investment Corporation of Dubai (ICD), which holds the healthiest government-related entities in the Dubai Inc complex."
ICD has been perhaps the biggest beneficiary of Dubai's tourism and retail-led rebound and one that could play a key role in its deleveraging.
It is one of Dubai's three big holding companies and widely recognised as containing some of its most prized assets. It controls Emirates Airline and Dubai Duty Free as well as Emirates NBD, the country's largest bank by assets. Other holdings include Emaar Properties, one of the region's biggest property developers, and Dubai Aluminium, one of the Middle East's largest producers of the metal. These and other companies give ICD a lot of financial firepower, analysts say.
The first opportunity to provide such assistance comes on June 12, when DIFCI's debt is due. While ratings agencies are worried about where the company will find the money needed to repay the sukuk, the company itself has offered no hint that it will face problems.
"Our intention remains the same, to meet our debt obligations in full," Abdulla Mohammed Al Awar, the chief executive of the Dubai International Financial Centre told The Nationallast week.
Exotix estimates DIFCI is likely to need as much as $983m to settle its debts come June but points out that its significance as a major showpiece of Dubai's financial and economic diversification gives it strong implicit support from the Government. It also has assets to sell, including SmartStream Technologies, a software licensing business based in the UK. It has also started talks with banks to raise a loan to help repay its sukuk, Bloomberg News reported last week.
Elsewhere in the Dubai Inc empire, other assets are also starting to hit the market. Dubai Group, owned by Dubai Holding, is selling its Jumeirah Essex House hotel in New York amid signs of improving asset values in the US. That could encourage further property disposals by other Dubai Inc companies with extensive international property holdings.
JAFZ, an industrial and logistics hub owned by Dubai World, faces the biggest debt maturity this year a Dh7.5bn bond due on November 12. With acres of industrial sheds sprawling across both sides of Sheikh Zayed Road on the outskirts of the emirate, it hardly enjoys the showpiece status - but it also has assets to sell. The most likely to generate interest is Gazeley, a UK industrial developer acquired in July 2008 from Wal-Mart Stores. Citigroup is advising JAFZ on how to repay the bond, including the potential sale of Gazeley, Reuters reported last month.
If assets such as Gazeley and SmartStream fail to generate the interest their owners hope for, they may still be able to tap the financially stronger profit centres of Dubai Inc.
"Dubai has the option to arrange financial assistance by redistributing cash to others through increased dividend distributions from Dubai's flagship state-owned enterprises," said Moody's in a recent report.
The industrial warehouses of Jebel Ali seem a long way from the pristine beaches of Jumeirah and seldom feature on the tourist trail. Yet in the interconnected world of Dubai Inc corporations, they are not so far apart.
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