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Dubai Pitches Its Debt to Wary Investors |
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10.23.2009 |
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DUBAI -- This heavily indebted sheikhdom is dipping its toe again into international debt markets, a sign of new confidence among officials here in the Gulf region's economic recovery.
Officials from Dubai's department of finance told investors in Hong Kong on Thursday that they would decide in coming weeks whether to launch a global bond sale, according to two people at the meeting.
The officials have embarked on a roadshow in Europe and Asia, meeting with current and potential investors, which could help them gauge the interest in such a sale.
Dubai doesn't have the petroleum wealth of its neighbors, and the pillars of its economy -- real estate, tourism and logistics -- have all been hit hard by the global downturn. Fresh borrowing is crucial for the city-state's recovery. Being able to raise some funds now at competitive prices would provide reassurance to other potential investors.
But it is far from clear how successful Dubai officials will be in persuading banks and other lenders to extend new credit. It borrowed heavily to finance its supercharged growth over the past two decades, becoming a global symbol of the boom years earlier this decade, and of the bust more recently.
The emirate and its corporate entities have close to $50 billion in debt repayments, equivalent to about 70% of the sheikdom's gross domestic product, coming due over the next three years, according to Standard & Poor's. Dubai's finances aren't transparent, and the city-state doesn't have a sovereign credit rating.
"Getting an accurate picture of the macroeconomic situation in Dubai is very tricky because the data is not there," says Tristan Cooper, an analyst at Moody's Investors Service.
Still, a regional rebound and the implicit backing of the federal government in oil-rich Abu Dhabi have reassured many investors. Dubai is one of seven emirates that make up the United Arab Emirates.
With oil prices rebounding strongly, an economic recovery across the Middle East looks set to be quicker and stronger than forecast just a few months ago. This month, the International Monetary Fund forecast growth for the six states that ring the Persian Gulf at just 0.7% this year. But that is projected to jump back to 5.2% next year.
And thanks to assistance earlier this year from Abu Dhabi, Dubai has so far made good on its debt obligations. Premiums to insure against a default on Dubai debt have dropped dramatically in recent months.
In February, Dubai announced the first $10 billion tranche of a $20 billion bond program to help pay debts by its various corporate entities and bills owed by its hobbled property developers. The issue was snapped up in whole by the federal government in Abu Dhabi, essentially a bailout.
Officials have said they expect to issue the second $10 billion tranche by year's end. This time, they say, they are seeking out foreign lenders. Some officials have said they have received expressions of interest. Skeptics expect Dubai to go back to the federal government for much, if not all, of the borrowing.
A spokeswoman for Dubai's department of finance said the European and Asian roadshow this week wasn't related to the $10 billion bond program. She said the roadshow was a routine, informational tour to meet investors, and declined to give any more information about the trip or about any plans by Dubai to raise funds.
—Stefania Bianchi in Dubai and Aries Poon in Hong Kong contributed to this article.
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Source:online.wsj.com |
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