Dubai faces a "pivotal year" in 2014 as the emirate tackles $20 billion of debt amid an unclear legal framework for restructurings and uncertain support from its richer neighbour, Moody's Investors Service said.
"Little progress has been made on clarifying and strengthening the legal framework for insolvencies/debt restructuring, while details of the Dubai government's capacity to support its government-related institutions remain uncertain," Moody's said in a report titled 'Dubai Corporates: Modest Economic Growth Benefits Corporate Credit Quality, But 2014 Debt Wall Looms'. Next year "will be a pivotal year for Dubai as $20 billion of direct government debt related to Dubai World becomes due," it said.
Dubai, which was on the brink of default in 2009 after a spending binge to turn itself into a trade and tourism hub, has about $17 billion of bonds and loans maturing in 2013 and 2014, according to data compiled by Bloomberg. Dubai's neighbour Abu Dhabi and its banks probably won't provide direct support to the city next year after the United Arab Emirates capital and the central bank rescued Dubai from the crash with a $20 billion dollar lifeline, according to Moody's.
Budget rationalisation
Abu Dhabi's potential reluctance to provide more support to Dubai could be due to its "budget rationalisation process that affected public institutions as much as its core government- related institutions," Moody's said. "This has enforced stricter spending prudence for Abu Dhabi's own economy and would in that context make additional support for Dubai's corporates unlikely."
The UAE's central bank in 2012 announced measures to cap lending to state-run companies after the bailout.
Investors have sought exposure to Dubai's economic recovery after three state-related companies paid or refinanced $3.75 billion of debt in 2012, improving perceptions of the city's credit risk. Dubai in January raised $1.25 billion in 10-year sukuk and its first 30-year bonds as it took advantage of tumbling borrowing costs.
The cost of insuring Dubai's debt for five years, which receded more than peers last year, declined eight basis points, or 0.08 per centage points, in 2013 to 217 on March 8, according to data provider CMA. That compares with a 22 basis-point decline for the cost of insuring Abu Dhabi's debt for five years in the same time period, the data show. Gross domestic product in Dubai may grow more than four per cent this year, according to Sami Al Qamzi, director general of Dubai Department of Economic Development. Figures for the first six months of 2012 point to growth of 4.1 per cent for the full year, he said last month.
