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Dubai gets $20b debt rollover

Abu Dhabi: The Abu Dhabi Department of Finance and UAE Central Bank of the UAE on Sunday signed two separate agreements with Dubai Government to refinance a total of $20 billion in loans and bonds.

While the Government of Abu Dhabi has agreed refinance the $10 billion loan, the UAE Central Bank has also signed an agreement to extend the tenure of a $10 billion bond issued by Dubai Government in 2009.

In both cases, the new tenure is set at five years renewable, with a fixed interest rate of 1 per cent.

Dubai borrowed the money five years ago to help the government and its government-related entities (GREs) to meet some of the debt obligations in the face of the global financial crisis. The refinancing comes ahead of its maturity this year.

Shaikh Ahmad Bin Saeed Al Maktoum, Chairman of Dubai Civil Aviation Department and Chairman of Dubai’s Supreme Fiscal Committee, signed for the Dubai Government, while Hamad Al Hurr Al Suwaidi, Chairman of Abu Dhabi Department of Finance, signed for the Abu Dhabi Government, and Khalifa Mohammad Al Kindi, Chairman of the Board of Directors of the UAE Central Bank, signed on behalf of the Central Bank.

The $10 billion debt from the central bank was in the form of bonds and was due to mature this month. The previous bonds carried a 4 per cent coupon while the refinancing has been done at a fixed rate of 1 per cent.

The other $10 billion loans provided through National Bank of Abu Dhabi and Al Hilal Bank, was due to mature later this year.

The widely anticipated debt rollover agreements come at a time when the Dubai economy led by trade, tourism and property sectors have made major recovery in recent months.

The rollover is expected to enable Dubai to continue to spend on infrastructure, leading up to the hosting of Expo 2020.

“The signing of these agreements is aimed at boosting the economic recovery the country is witnessing, and would contribute to realisation of the vision of our wise leadership,” said Al Suwaidi.

“It is a very positive news for the UAE economy as a whole. While the news will boost the surging investor confidence in Dubai, the move has send out the message that the UAE has a unified economy,” said Shailesh Dash, chief executive officer of Dubai-based Al Masah Capital.

The legacy debt problems faced by Dubai entities have been largely moderated through prudent restructuring efforts with the local banks and international banks. “Signing of these agreements is consistent with the UAE’s prudent financial policy which aims at supporting and promoting economic growth,” said Al Kindi.

Despite the recent debt restructurings and refinancing deals, analysts said the Dubai’s public sector remains relatively highly leveraged. “To grow out of its debt overhang, in our opinion, Dubai needs a combination of internal cash generation, asset sales, refinancing, decent global outlook and liquidity,” said Jean-Michel Saliba, an economist with Bank of America Merrill Lynch.