Emaar’s $1bn loan shows refinancing should not be a problem for Dubai in 2012

The ability of Emaar Properties to close a $980 million syndicated loan from three banks yesterday suggests that refinancing a $10 billion debt pile for Dubai Government and related entities should not be a problem in 2012.

Emaar pledged the Dubai Mall as collateral for the five-to-eight year loan package from Dubai Islamic Bank, National Bank of Abu Dhabi and Standard Chartered Bank, and will pay just five per cent interest. Corporates around the world have been rushing to fix loan deals at current low interest rates that may not last in another financial crisis.

Emaar’s low debt

The developer of the world’s tallest building has some $1 billion in debt maturing next year out of a total debt of $2.7 million, according to Bloomberg, leaving the company only moderately borrowed for its size.

Emaar needs the funds to carry on with projects in Saudi Arabia, Jordan and Egypt now that most of its Dubai projects are finished. Last January Emaar raised $500 million in an Islamic sukuk bond at 8.5 per cent, then considered a good deal.

However, the success of Emaar is refinancing at such attractive rates just has to be positive news for the Dubai Government and its related entities that need to refinance a total of more then $10 billion next year in what look certain to be very challenging financial markets. This sum is already significantly smaller than the $25 billion refinancing that resulted in the so-called Dubai debt crisis of two years ago.

But credit rating agency Moody’s warned this month of its ‘concerns about renewed medium-term pressures when the refinanced obligations become due, and about Dubai potentially needing further financial support’.

Government debts

Part of Dubai Holding has a $500 million bond due in February, the DIFC has a $1.25 billion bond up in June, Jebel Ali Free Zone must repay $2 billion in November and the Dry Docks is negotiating over $2 billion. Chairman of the Dubai Supreme Fiscal Committee, Sheikh Ahmed bin Saeed Al Maktoum who led the $25 billion Dubai World debt refinancing is confident this can be done without major restructuring.

However, the huge black cloud hanging over the European banking sector for 2012 will mean a dependence on UAE-based banks to support this refinancing. Sheikh Ahmed is also chairman of Emirates-NBD, the largest Dubai bank and again well placed to lead from the front.

What Dubai would most like to avoid is another bailout from Abu Dhabi like the $20 billion check two years ago. Abu Dhabi’s own spending cutbacks and austerity measures suggest this would be less easy to achieve in 2012 and come at a much higher price. But with some clever juggling of its loan book Dubai should be able to look after itself next year.