Dubai’s debt crisis not over

05 December 2011

2012 will be another challenging year for the indebted emirate

After narrowly avoiding a humiliating default on its more than $100bn debt pile in 2009, Dubai’s financial situation has improved markedly.

“With problems in the Eurozone … refinancing Dubai’s 2012 debts will not be easy”

It is now far more transparent, with several bond issues providing an insight into the emirate’s finances. Several companies, including developer Emaar Properties and Dubai Electricity & Water Authority have taken steps to manage their 2012 maturities well ahead of time. Decent performances in Dubai’s core sectors such as transport and tourism have helped boost confidence since 2009. A $20bn bailout from Abu Dhabi also helped buy some time.

But Dubai’s debt problems are not over yet. As it heads into 2012, it has more than $10bn of debt maturities to deal with over the next 12 months, $3.8bn of that is in firms with a poor credit rating.

One ratings agency says the government may need to provide more financial support to state-owned firms next year. Some officials are reportedly raising the prospect of restructuring bond debt, which so far Dubai has tried to avoid as it would create a huge dent in the financial market’s confidence in Dubai.

With problems in the Eurozone likely to affect European bank appetite for Middle East deals, refinancing Dubai’s 2012 debts will not be easy. Many banks will want to see signs that debt is being repaid, not just pushed out to be worried about another day.

A big question hangs over whether the government has the resources to provide support, or can get access to it in time to avoid another flirtation with default, or worse.

This is by no means Dubai’s last financial test. In 2015, the emirate has $15bn of debt maturing, much of it has already been rescheduled once. That date is fast approaching and unless Dubai can generate some rapid economic growth and sell off some of the over-priced assets purchased during the boom, it will find there are even tougher times ahead.

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