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Dubai Has Beaten Its Fiscal Challenges, Sheikh Ahmed Says

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Nov. 12 (Bloomberg) -- Dubai said it has overcome its financial challenges and could issue debt if it wanted, even as some of its creditors threaten the city-state with lawsuits over $10 billion of loans.

Dubai, the second-biggest emirate in the United Arab Emirates, and Emirates Airlines are always seeking opportunities to sell debt, though there is no urgency to do so and much depends on “if it’s a good time or not,” Sheikh Ahmed bin Saeed Al Maktoum, the head of Dubai’s Supreme Fiscal Policy Committee, told reporters at the World Economic Forum in Dubai today. “It’s not like we’re desperate to issue anything new.”

Dubai, which borrowed $20 billion from the central bank, the Abu Dhabi government and its lenders in 2009 to avoid a default, isn’t concerned about refinancing outstanding debt, Sheikh Ahmed said. Asked about re-capitalizing the Dubai financial support fund, he said: “No, we don’t need to do anything like that. All the companies are doing well.”

“I believe we proved to the market that we overcame the problem,” he said. “It’s very small when compared to other countries. And we see in the last couple of years that there’s growth in the tourism, aviation sector and banking sector.”

The credit risk of Dubai, which is recovering from a crash in property prices, helped by a rebound in tourism, trade and transport, receded this year as many state-linked companies repaid and restructured debt. The emirate’s credit risk has plunged 205 basis points, or 2.05 percentage points, this year to 240, says data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. Dubai’s benchmark DFM General Index has gained 20 percent this year.

‘Great News’

“This is great news, but the market has also realized that and that’s one of the reasons the stock market is up since the beginning of the year,” Haissam Arabi, chief executive officer of Dubai-based hedge fund Gulfmena Investments Ltd., said by telephone today, referring to Sheikh Ahmed’s comments. “This comes as an additional confirmation to what investors have come to terms with.”

Still, Royal Bank of Scotland Group Plc, Commerzbank AG and Standard Bank Group Ltd. threatened to mount a legal challenge against Dubai Group LLC, an investment company owned by the emirate’s ruler, two months after they abandoned talks to restructure $10 billion of loans, the lenders said in a joint statement on Sept. 12.

Revamping GREs

Dubai has “dealt quite effectively and proactively with the refinancing needs, but also there has been quite a lot of progress in the restructuring of some of the troubled GREs themselves,” said Masood Ahmed, head of the International Monetary Fund’s Middle East and Central Asia department, said in an interview in Dubai yesterday, referring to government-related entities. “It’s still the case that their refinancing needs are quite significant for the next year ahead and the world financing environment is a bit tougher.”

Dubai’s economy may grow more than 4 percent next year, Sami al-Qamzi, director general of the city’s Department of Economic Development, said at the World Economic Forum. He said 5 million tourists had visited Dubai in the first half of 2012 and a similar number would travel to the emirate in the second half.

Smaller U.A.E. companies will continue borrowing from banks after the implementation of Basel 3, central bank Governor Sultan Bin Nasser Al-Suwaidi said at the same event.

To contact the reporters on this story: Mahmoud Kassem in Abu Dhabi at mkassem1@bloomberg.net; Dana El Baltaji in Dubai at delbaltaji@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net; Andrew J. Barden at barden@bloomberg.net

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