Questions remain over level of federal support
The UAE as a whole is more than capable of servicing conglomerate Dubai World’s $26bn of debts, according to a top Middle Eastern banker.
However, any decision to support the company is entirely dependent on oil-rich Abu Dhabi, said Henri Azzam, the chief executive of Middle East and North Africa (Mena) operations at Germany’s Deutsche Bank at a conference organised by the Union of Arab Banks on 24 March.
“Dubai World is restructuring $26bn of debt, $12bn of which is due by the end of 2011, and the UAE is more than capable of servicing these debts,” he said.
The UAE is expected to produce around 2.2 million barrels a day of oil at an average price of $60 per barrel in 2010, which equates to revenue of $48bn a year, Azzam said. In addition, Abu Dhabi generates roughly $30bn of revenue from external investments every year. The majority of the UAE’s income is from Abu Dhabi’s oil reserves, so the ability of the federation to service the debts of Dubai will depend on how much support the larger emirate is willing to offer its troubled neighbour, he said.
Dubai World needs to repay $5.5.bn of debt in 2010 and $6.5bn in 2011. Of this $12bn, foreign banks have provided $6bn and regional bankscontributed the other half.
Azzam added the GCC has $600bn worth of infrastructure projects planned in the coming years, many of which are being held back by a lack credit.
“Some of these projects haven’t started because there is insufficient bank credit,” he said. “The total capitalisation of Saudi banks stands at $60bn today, and $68bn at UAE banks. Governments should use their surpluses to deposit more money with the banks.”
The GCC needs to focus on developing its debt and equity markets to try and further supplement credit, Azzam added.