Interpreting Middle East Economic News and Analyzing Market Trends

Dubai times it right: Abu Dhabi agrees to rollover $20 billion in Dubai’s debt

Downtown Dubai

The timing could not have been better for Dubai to have big brother Abu Dhabi agree to rollover $20 billion in debt.  The debt is part of a broader restructuring  leftover from the credit crisis.  Dubai still has a lot of debt outstanding.  The IMF estimates that there is over $85 billion of debt maturing between now and 2017.  Dubai is playing its cards right and the timing could not be better.

 

Abu Dhabi and the central bank of the United Arab Emirates have agreed to refinance $20 billion of debt that was extended to the Dubai government as emergency aid during its financial crisis and comes due this year, the state news agency said on Sunday.

The debt is being rolled over for five years at a 1 percent annual interest rate, WAM said in an official statement.

The roll-over covers a $10 billion, five-year loan which was offered to Dubai by the Abu Dhabi government through two state-owned banks, and $10 billion of five-year bonds which Dubai issued to the UAE central bank.

The agreement, which had been expected by financial markets, will enable Dubai to continue spending heavily to develop itself as a regional center for finance, trade and tourism.

Dubai, one of seven emirates in the UAE, obtained the aid in 2009 after the global credit crisis caused its real estate market to crash, threatening to force some of its state-linked firms to default on billions of dollars of debt.

The neighboring emirate of Abu Dhabi, which is the capital of the UAE and has vast oil wealth, stepped in to bail Dubai out. Dubai is now recovering strongly, with residential property prices up over 20 percent last year and its stock market. DFM (stock market) rallying about 140 percent since the end of 2012.

This month’s roll-over deal “is part of the signatories’ attempts to reinforce the competitiveness of the Emirati economy regionally and internationally,” WAM said. “It also reflects the positive developments that the local economy of the emirate of Dubai has seen in recent years.”

Read the full story from Reuters.

  

Dubai and Dubai government entities still have a lot of debt to rollover, but the move by Abu Dhabi comes at the right time.  International investors are getting nervous on emerging market debt, especially with recent defaults in China (albiet small ones) along with political turmoil stretching from Brazil to Thailand. 

This clearly sends a signal to international lenders that big brother is ready to step in and help.  Although, I’m not sure if there are any new trophy buildings to rename in case big brother does step in.  In this case, other prized assets might be handed over in return… can anyone say Etihad-Emirates merger?!