$70bn of debt due in the Gulf this year to force major asset sales

Standard Chartered Bank estimates that the amount of short term debt due for repayment this year in the GCC totals around $70 billion, a considerable amount more than the $20 billion reckoned to be owed by the emirate of Dubai. The bank sees a round of further asset sales and bank write-downs as inevitable.

Speaking to Bloomberg yesterday, Nafees Akbarali, regional head of fixed income said: ‘With significant debt maturities coming into the year and concerns over transparency for some GCC economies, risk premiums will build up and this will serve to push up borrowing costs… We’re going to have to see more asset sales this year and going into next year’.

Zabeel’s debts

The National reports today that Zabeel Investments, a property development company owned by Dubai Crown Prince Shiekh Hamdan bin Mohammed is in talks with creditors to restructure $1.6 billion, and has missed some payments of loan principle recently but mainly met interest charges. Its main creditors are Emirates NBD, Union National Bank and the Commercial Bank of Dubai.

Zabeel owns the Jumeirah Zabeel Saray hotel and the Tiara Residence on the Palm Jumeirah, and a 50 per cent stake in the Tiara United Towers as well as Zed Communications and a four per cent stake in private equity group Abraaj Capital. The company was created by Mohammed Ali al Hashimi, formerly CEO of the troubled Islamic home loan company Amlak Finance, but he is no longer actively involved.

Aldar’s debts

Meanwhile, in Abu Dhabi shareholders are worried about the $2.7 billion in debt falling due at Aldar Properties this year, and fear shareholder dliution will result from a government bailout. And The National points out that federal government-owned fuel retailer Emarat is known to be in talks to raise cash.

But bankers say the main problem is with bilateral bank loans, like those now due for repayment at Zabeel Investments. This is where the scary total of $70 billion comes from, far above the $24.9 billion in loan rescheduling already agreed for Dubai World or Dubai Holding’s debts.

For in the boom many large local families borrowed big-time on their reputations and names. Credit assessments were often superficial at best and now there is a price to pay as these loans fall due and the borrowers simply do not have the money.

Money gone

Indeed, they have largely spent it on partly completed construction projects, although the banks have been allowing a selected number of projects to be finished. It will be these assets that they will hope developers will now be able to sell to pay off their debts.

The recent $300 million sale of the Ritz Carlton in the Dubai International Financial Centre by Union Properties to an unnamed Abu Dhabi sheikh is an example of what is to come, and this hotel officially opens on Thursday. But expect to see more bargain basement asset sales this year. The banks are going to want their money back.