Friday, July 03, 2009

Dubai continues restructuring of finances

Dubai's 2nd $10B Bond May Get UAE Govt Guarantee (WSJ)
"It will be the first time an emirate's bond has been backed by the federal government," the Dubai government official, who is involved with the bond told Zawya Dow Jones. Dubai is seeking federal support to help sell the bond to international banks who otherwise may be reluctant to buy the debt as the emirate continues to restructure its finances. The bond issue will be the first by Dubai backed by the federal government.
The bond program will support government spending plans and the private sector at a time when loans from international banks have dried up as global lenders have become too nervous to lend. At the same time, local banks are grappling with a large loan-to-deposit gap of about AED90 billion.
S&P cuts ratings on 3 Dubai GREs (AP)
A leading international ratings service said Tuesday it had cut its credit rating of three Dubai government-backed entities, voicing concerns about the emirate’s willingness to continue backing some companies in the one-time Arab boomtown hard hit by the global recession.

Standard & Poor’s Ratings Service said it downgraded the ratings for port operator DP World, the Jebel Ali Free Zone and Dubai Multi Commodities Centre Authority, all of which had been on credit watch with negative implications since the end of April.

“The rating actions reflect Standard & Poor’s reappraisal of the likelihood of extraordinary financial support by the Government of Dubai to its GREs to ensure the timely repayment of their financial obligations,” the agency said in a statement. S&P said the reappraisal also was the result of “increased uncertainty regarding the government’s willingness to provide such support” to Nakheel, the property developer famed for building Dubai’s manmade islands.
UAE Banks in Talks with Saudi Debtors (Khaleej Times)
Although UAE banks refused to specify their individual exposures to the Saudi borrrowers, Central Bank Governor Sultan bin Nasser Al Suwaidi, speaking earlier this week, described their combined exposure as “significant.” Media reports peg total outstanding loans from UAE banks at around $767 million — more than one-tenth the estimated $7.4 billion that all banks worldwide have lent to the Saudi groups.

“Some of the banks in the UAE have large gross exposure to these groups but they also have large collateral,” said Emmanuel Volland, Senior Director for Financial Institutions Ratings at Standard & Poor’s. “You need to look not at the gross exposure but (the) net of the collateral. Of course, you have to evaluate the quality of this collateral — cash being the best.”

Standard & Poor’s does not rate all UAE banks and cannot comment on their total exposure, said Volland, who is based in Paris. “We rate two banks in Abu Dhabi, NBAD and ADCB.

Both banks have recently received (a) capital infusion by the [federal] government.
No doubt Abu Dhabi will attach strings to the loan guarantees to Dubai, and has examined the quality of the collateral Dubai has to offer.

In other news Dubai continues to think big, and studying the possibility of submitting a bid for the 2020 Olympics. The construction costs are estimated in the billions of dollars.


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