$2.8bn loan deal largest for Dubai since the property crash

Rising optimism about the recovery prospects of Dubai has allowed the government’s Investment Corporation of Dubai to borrow $2.8 billion, the largest loan deal since the property crash and global financial crisis, with the $1.6 billion conventional tranche priced just 350 points above Libor.

The Financial Times reports that HSBC, Citi and Emirates NBD are co-ordinating the conventional funding while the $1.2 billion Islamic tranche is being led by Standard Chartered and Dubai Islamic Bank. The Investment Corporation of Dubai is a holding group whose assets include Emirates Airline and Dubai Aluminium, two of Dubai’s most profitable wholly state-owned companies.

Back to past interest rates

It is obviously a sign of improved confidence in Dubai among the financial community that a sum of this size can now be raised for the same premium above Libor as before the global financial crisis and Dubai real estate crash. Then the emirate was forced to turn to neighboring Abu Dhabi for $20 billion in emergency funds.

Separately Emirates Airline was able to tap bond markets for $1 billion to fund its expanding fleet of aircraft that now includes 15 A380 superjumbos.

IMF data shows Dubai has $31 billion in debt maturing this year and next from a total debt mountain of $113 billion, and handling this debt roll over is still going to be a challenge.

However, Dubai’s debts always have to be seen in the context of the UAE federation as demonstrated by Abu Dhabi’s previous intervention, and the Abu Dhabi sovereign wealth fund is reckoned to be four or five times bigger than the debts of Dubai.

Privatizations?

So far Dubai has not sold anything to raise cash to pay down debt, although the $24.9 billion Dubai World debt rescheduling does include the provision for asset sales if repayments are not met. Clearly distressed asset sales at current low prices are a solution that Dubai would like to avoid if at all possible.

However, the listing of DP World shares on the London Stock Exchange last month may open up another route to sell stock as the government still holds around 80 per cent of the global port operator. Other privatizations are a possibility if valuations improve, and would have the added bonus of reviving the local stock market that is currently stuck in a deep hole.

Dubai has indeed showed far greater skill in getting to grips with its debts than it showed in managing the later stages of its real estate boom and, as this website argued yesterday, seems well on the path to recovery (click here) unless the world goes into a double dip recession.