Al-Suwaidi Says Dubai Not Likely to Need More Aid (Update3)

March 15 (Bloomberg) -- United Arab Emirates Central Bank Governor Sultan bin Nasser al-Suwaidi said Dubai isn’t likely to need more central bank aid as one of its companies restructures $26 billion in debt.

“They haven’t discussed this issue with us and I don’t think it will be necessary,” al-Suwaidi said today in an interview in Abu Dhabi. His answer came in response to a question on whether Dubai would need further federal support.

Dubai, the second-biggest of the U.A.E.’s seven emirates, and its state-owned companies borrowed money to transform the sheikhdom into a tourism, trade and financial services hub. The central bank, the Abu Dhabi government and two Abu Dhabi-based banks pledged $20 billion to support Dubai’s companies after global credit markets froze.

Dubai World, one of the biggest state-owned holding companies, is in talks to delay $26 billion in debt. It will ask banks for permission to delay loan repayments when it presents a plan this month, three bankers familiar with the negotiations said on March 8. The company will present a restructuring proposal to its creditors after its advisers complete valuing the company’s assets, a person close to the Dubai government said on Feb. 17.

Treated Equally

“They’re mindful that the restructuring package does not impact the reputation of the emirate,” al-Suwaidi said. “All banks will be treated equally and in a fair way. There will be no discrimination between local or international banks.”

The central bank is taking an advisory role in the talks, he said. It is not part of the committee charged with the restructuring.

Credit default swaps linked to Dubai fell 26 basis points to 440.5 basis points today, according to prices provided by CMA DataVision in London. Nakheel PJSC’s $750 million Islamic bond maturing in January gained 1.375 cents to 63 cents on the dollar at 4:28 p.m. in Dubai, according to Citigroup Inc. prices. The bond headed for the highest close since Jan. 15. Nakheel is a property unit of Dubai World that is building palm-shaped islands off the coast of the emirate.

U.A.E. banks are well capitalized and won’t “be impacted in a major way,” by the debt restructuring, al-Suwaidi said today. U.A.E. banks have a capital adequacy ratio of 19.2 percent, he said.

Real-Estate Boom

The International Monetary Fund estimates Dubai borrowed $109.3 billion, about 130 percent of the emirate’s gross domestic product, during a real-estate boom that ended in 2008.

“Once the restructuring is put in front of banks I think they will have their own decisions whether to accept or not,” he said. “But I think the committee will try its best to make it attractive and acceptable to banks,” he said. The proposal will be discussed with banks “very soon.”

Al-Suwaidi also said the U.A.E., which pulled out of a planned monetary union in the Persian Gulf last year, remains committed to the concept of a single regional currency, though free trade in the region must come first.

“We are still committed to the single currency, but the timing is the issue,” al-Suwaidi said.

The six-member Gulf Cooperation Council agreed in 2001 to create a shared currency to help them integrate economies and pursue a monetary policy more independently of the U.S. All of the council’s members except Kuwait peg their currencies to the dollar.

The U.S. dollar is the most prominent currency and will be “for many years to come,” al-Suwaidi said. “It’s not in the best interest of the U.A.E. to even think about moving away from the U.S. dollar peg.”

To contact the reporter on this story: Camilla Hall in Abu Dhabi at chall24@bloomberg.net