Dubai, the Persian Gulf emirate whose near default in 2009 roiled global markets, signed an agreement with Abu Dhabi and the United Arab Emirates’ central bank to roll over $20 billion of debt for five years.
The liabilities, which include $10 billion of bonds owed to the central bank and another $10 billion to Abu Dhabi’s government, will pay fixed interest of 1 percent, according to a statement on state-run WAM news agency today. That compares with an interest rate of 4 percent on the original loan from 2009. The new facility is renewable after five years.
“It’s an amazing deal for Dubai,” Shailesh Dash, chief executive officer of Dubai-based Al Masah Capital Ltd., which manages $545 million, said by phone. It shows “the support of cash-rich Abu Dhabi to Dubai’s development” and gives more confidence to invest in Dubai and the U.A.E., he said.
Dubai, the second-biggest of seven emirates that make up the U.A.E., and its state-owned companies ran up $113 billion of debt as it sought to develop its real-estate industry and transform into a tourism and financial services hub. The sheikhdom had to borrow the $20 billion to help state-controlled companies through the global credit crisis and to support palm island developer Nakheel PJSC pay a $3.52 billion bond.
Dubai, home to the world’s tallest skyscraper, is recovering from one of the world’s worst property crashes helped by a rebound in tourism, trade and its real-estate industries. Economic growth in the emirate is set to average 4.6 percent a year between 2012 and 2015, more than twice the rate of the previous four years, according to government forecasts.
Today’s agreements are part of “efforts to boost the competitiveness of the U.A.E. economy on both regional and international levels, and to reflect the upturns Dubai domestic economy has witnessed over the past few years,” according to the statement. “Signing of these agreements is consistent with the U.A.E.’s prudent financial policy which aims at supporting and promoting economic growth.”
Dubai’s cost of borrowing has tumbled since the financial crisis. The emirate sold $1.25 billion of five-year Islamic bonds in 2009 with a profit rate of 6.396 percent, according to data compiled by Bloomberg. Last year it raised $750 million in 10-year notes at 3.875 percent.
The emirate’s credit-default swaps, contracts for insuring its debt against default for five years, climbed to 941 basis points in 2009, according to data compiled by Bloomberg. The contracts closed at 200 in London on March 14.
Dubai Group LLC, an investment company in the emirate, on Jan. 23 reached agreement with lenders to extend maturities on $10 billion of debt. Dubai World, one of the emirate’s three main state-controlled holding companies, reached a deal with about 80 creditors to restructure $14.7 billion of debt in March 2011, while Nakheel reached a similar deal in July that year on $2.2 billion of loans.
Dubai’s property market was boosted when the emirate won the right to host the World Expo 2020 in November. Home prices in Dubai may jump as much as 40 percent this year, according to the emirate’s Land Department.
State-controlled Emaar Properties PJSC, the emirate’s biggest publicly traded developer, said yesterday it plans to raise as much as $2.45 billion from a share sale of its shopping malls unit this year.