Dubai heading for $100bn debt
Posted on 21 April 2009 with no comments from readers
Dubai may have total debts of $100 billion by the end of the year as it draws down a $20 billion bond facility which adds to the $80 billion in accumulated debt the emirate has already acknowledged.
Speaking on the Dubai Eye radio show today, Nasser Al Sheikh, Director General of the Dubai Department of Finance explained that more than $5 billion of the first $10 billion tranche of bonds had already been dispersed to local companies to alleviate the impact of the financial crisis on their cash flow and pay outstanding invoices.
Bond funds
Dubai Government is paying a four per cent coupon on the bond over five years, and the UAE Central Bank has taken up the first $10 billion issue. Companies receiving the funds are being charged a modest premium to cover administration, said Mr. Al Shaikh.
His brief is to ensure that all infrastructure projects are completed. Dubai seems very keen to avoid ending up with half-built construction sites like those seen for years after the Asian Financial Crisis.
With the UAE federation, and most critically support from Abu Dhabi, Dubai is able to finance its modern infrastructure program with relative ease. However, this money has to be paid back and Mr. Al Shaikh also alluded to a complete rescheduling of the Dubai Strategic Plan which is still under discussion.
The building will therefore continue in Dubai, albeit at a slower pace than in recent years, and with certain projects coming under the axe. Hence the good days are over for those surplus to requirements and there may be a net loss of population this summer.
However, Mr. Al Shaikh pointed out that projects like the new Dubai Metro which opens in September will employ thousands of people, and that Dubai will continue to offer jobs for many expatriates.
Business not quite as usual
Dubai is also clearly going to need to keep the emirate’s tills ringing to bring in the money needed to service what will amount to at least $100 billion in total debts by the end of the year.
Further out the government could do with a dose of higher global inflation to bail it out, with debts remaining static against rising revenues. It is perfectly likely that this scenario will emerge as global bailout and stimulus plans fuel inflation in a recovery.
However, in the meantime stories of the death of Dubai appears to have been ludicrously exaggerated, and the international press should remember that the economics of the oil-rich UAE are different to most countries.
