Dubai Accelerates Asset Sales as $30 Billion Debt Wall Looms

Dubai, which teetered on the brink of default in 2009, is accelerating asset sales as more than $30 billion of debt repayments come due next year.

Dubai Financial Group yesterday agreed to sell its stake in consumer lender Dubai First to First Gulf Bank PJSC for 601 million dirhams ($163 million). Dubai Holding LLC plans to sell its 35 percent stake in Tunisie Telecom, the country’s ministry for information and communication technologies, said June 21.

The second largest of the seven sheikhdoms that comprise the United Arab Emirates, Dubai is seeking to take advantage of a rebounding economy to regain investor confidence after its near default on $25 billion of debt roiled markets almost four years ago. State-owned companies such as Dubai Holding and Dubai World borrowed billions in a spending binge intended to make the city the preeminent trade and tourism hub of the Middle East.

“Government entities are accelerating the pace of asset sales to meet upcoming debt,” Montasser Khelifi, a senior manager for global markets at Quantum Investment Bank Ltd in the city, wrote in e-mailed comments. “They’re trying to anticipate maturities as market conditions have been good. We’ve seen a surge in M&A activity both regionally and globally.”

The emirate’s state-linked debt coming due totals about $32 billion next year and $9.6 billion in 2015, according to Bank of America Merrill Lynch. Abu Dhabi, Dubai’s larger neighbour, probably won’t provide direct support next year after rescuing Dubai from the crash with a $20 billion lifeline, Moody’s Investors Service said in a March report.

Dubai Recovery

After almost four years of financial crisis, Dubai’s economic recovery has quickened with a rebound in tourism, trade and property. The economy will grow 4 percent this year, according to the International Monetary Fund, while the Dubai Financial Market General Index has risen 39 percent in 2013. The benchmark fell as much as 5.1 percent today before paring losses to close 1.9 percent lower amid an emerging-market rout after China signaled it will maintain efforts to curb credit.

MSCI Inc., whose equity indexes are tracked by investors with about $7 trillion in assets, upgraded stock markets in Dubai and Abu Dhabi to emerging-market status this month. The average sale price of mid-range villas in the emirate soared 47 percent in the year to May, while mid-range apartment prices advanced 32 percent, according to data compiled by Cluttons LLC.

The IMF estimates Dubai accumulated about $113 billion of debt as it pursued projects that included the construction of the world’s tallest tower, palm-tree shaped residential and tourism islands in the sea, and a real estate binge that saw vast tracts of land reclaimed from the desert.

Dubai World, the state-owned entity whose inability to repay debt helped trigger the crisis, agreed to sell U.K. warehouse developer EZW Gazeley Ltd. earlier this month. The company needs to repay $4.4 billion to creditors in 2015 and a further $10.3 billion by 2018, according to its repayment plan.

Bank Debt

Dubai Group, which owns Dubai Financial Group, last month agreed on final terms for restructuring $6 billion of bank debt. The Dubai First sale is “part of our stated plan to sell down assets in order to support our broader ongoing restructuring process,” Dubai Group Chief Executive Officer Fadel Al-Ali said yesterday in an e-mailed statement.

Dubai Group unit Dubai Insurance Group in February sold a 41 percent stake in Oman National Investment Corp. to Oman Investment Fund, the country’s sovereign wealth fund, for about $57 million. The company also holds stakes in Dubai-based investment bank Shuaa Capital PSC, Cairo-based EFG-Hermes Holding SAE and Bank Muscat SAOG, Oman’s biggest bank by assets.

Dubai faces a “pivotal year” in 2014 amid an unclear legal framework for restructurings and uncertain support from its richer neighbor, Moody’s said in the March report.

Earlier this month, Abu Dhabi’s Mubadala Development Co. said it will buy a 50 percent stake in state-owned Dubai Aluminium Co. and merge another aluminum smelter to create a $15 billion joint venture.

“We are seeing more consolidation of assets between Dubai and Abu Dhabi,” said Tariq Qaqish, head of asset management at Dubai-based Al Mal Capital PSC.

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