Dubai Debt May Be Higher Than $80 Billion, UBS Analysts Say

Nov. 27 (Bloomberg) — Dubai, the Persian Gulf emirate whose state-run companies are seeking to defer debt payments, may owe more than the $80 billion to $90 billion in liabilities assumed by investors, UBS AG analysts said in a note.

“Perhaps Dubai’s debt includes sizeable off-balance sheet liabilities that imply a total debt burden well above the $80 billion to $90 billion markets have estimated so far,” real estate analyst Saud Masud wrote in a note yesterday. “This could imply that the debt issued by Dubai in recent weeks is insufficient to meet upcoming redemptions.”

Dubai, which has said it will raise as much as $20 billion selling bonds to repay borrowings, said on Nov. 25 that state- run Dubai World, with $59 billion of liabilities, would ask creditors for a “standstill” agreement as it negotiates to extend debt maturities.

The request to delay debt repayment “came as a major shock” to investors, Masud and analyst Reinhard Cluse wrote in the note. Dubai World property unit Nakheel PJSC has $3.52 billion of Islamic bonds due Dec. 14.

Dubai accumulated $80 billion of debt by expanding in banking, real estate and transportation before credit markets seized up last year. The second biggest of seven sheikhdoms that make up the United Arab Emirates formed a fund to help reorganize state firms and sold $10 billion in bonds to the national central bank in February.

It borrowed an additional $5 billion from Abu Dhabi government-controlled banks Nov. 25, half the $10 billion in bonds that Dubai ruler Sheikh Mohammed Bin Rashid Al-Maktoum said he planned to raise by yearend.

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Repayment Delay

Seeking a repayment delay may indicate that Abu Dhabi, the U.A.E.’s largest sheikhdom, may not want to support Dubai further financially until the smaller emirates addresses internal problems at government-run companies, UBS wrote.

The request could also suggest that Abu Dhabi and Dubai have decided to seek to bolster long-term confidence in the market by forcing weaker parts of government businesses to take responsibility for bad decisions, Masud and Cluse wrote. That could involve defaults at some Dubai firms, they said.

Dubai property developers may be liable for an estimated $11 billion required to build 40,000 homes that they have started, said Masud in an interview yesterday. That amount represents the off-balance sheet cost, or “funding gap” required to complete and hand over the properties, on which investors are now defaulting, by the end of 2010.

Nakheel’s share of that funding gap is about $2 billion, estimated Masud. Around half of the investors in the 40,000 unfinished homes may default by the end of next year, he said.

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