Dubai avoids 2012 debt problem with $1bn loan

06 June 2012

Debt problems averted by last minute loan

Dubai will avoid any refinancing problems this year after DIFC Investments (DIFCI), the investment arm of Dubai’s financial centre, managed to secure a $1.035bn loan just days before a $1.25bn sukuk (Islamic bond) needed to be repaid.

The sukuk, due to be repaid on 13 June, had long been identified as one of the most potentially troubling of Dubai’s $15bn of debts that mature in 2012. At the same time Jebel Ali Free Zone Authority (Jafza) is close to raising AED6.8bn ($1.85bn) to refinance a AED7.5bn sukuk that must be repaid in November.

“We said in December that DIFCI would probably need direct government support to meet its repayment and based on various public statements that appears to be occurring,” says David Staples, managing director of corporate finance at ratings agency Moody’s. Bankers close to DIFCI say that it has raised $250m from two sales to the government’s Investment Corporation of Dubai.

Dubai’s successful refinancing of both deals will further boost confidence in the emirate, which has been steadily recovering from its debt crisis of 2009. “The underlying economy is on a positive trajectory and the government is taking a more disciplined approach to managing its finances, including its approach towards determining which entities will receive financial support, and which ones it is stepping back from supporting,” adds Staples.

Although several other debt restructurings are still under way at Dubai firms, the government is providing them with little direct support. Dubai’s total debt burden is estimated at around $110bn.

The DIFCI deal was a five-year loan priced at 380 basis points above the London interbank offered rate and lenders included the local Emirates NBD, Dubai Islamic Bank and Noor Islamic Bank, and the UK’s Standard Chartered.

Jafza started a roadshow of investors for a sukuk expected to be around $650m on 5 June. As reported by MEED in March, Jafza will also pay off $190m of the November sukuk from its own resources.

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