Just as there were signs that Dubai might be climbing out of its debt hole, Credit Suisse has released a report that puts the size of the emirate's borrowings above conventional estimates. Entities 50 percent or more owned by Dubai's government and ruler Sheikh Mohammed Bin Rashid Al-Maktoum amount to $129.3 billion, the Swiss bank said in a report dated January 13. It said the debt burden could, in fact, be “much higher than our final numbers owing to the lack of full disclosure.” The debt of what is popularly known as Dubai Inc, a collection of government and quasi-government businesses and agencies, is usually put at about $110 billion. A restructuring of the debt of Dubai World, the biggest of the Dubai Inc. borrowers, last September brought some improvement in investor sentiment and a handful of bond offerings at the end of last year. But Credit Suisse said it sees new problems ahead in 2011. “While Dubai World has secured a debt restructuring agreement with its creditors, we think that the issues may not quite be over for the emirate,” Credit Suisse said. “We think that there is a chance of a further rescheduling of debt.” Over this year and next, Dubai Inc. has to make repayments of $17.5 billion and $17 billion, the bank estimated. The level falls to $9.7 billon in 2013, but it balloons to $26 billion in 2014, when some $20 billion of rescue-financing from Dubai's fellow emirate Abu Dhabi comes due, Credit Suisse forecasted. It termed the repayment timetable “substantially tight.” Credit Suisse estimated that Dubai World, the government conglomerate that precipitated the debt crisis when it asked to reschedule loans in November 2009, accounts for almost 40 percent of Dubai Inc.'s total debt, or $50.2 billion. Direct government debt accounts for another $28.6 billion, with the balance held by the state-owned Investment Corp. of Dubai and other government-related entities, the bank said. Credit Suisse hasn't been alone is expressing concern about Dubai Inc.'s ability to meet its repayments this year. A Bank of America Merrill Lynch report December 6 warned that Dubai Inc. faces large redemptions this year, particularly in the first and third quarter. It also warned of “spill-overs” to Abu Dhabi because of the two emirates' business ties and Abu Dhabi's role as Dubai's lender of last resort. “We expect the restructuring to follow the Dubai World model, with modest haircuts on loans through maturity extensions of five to eight years,” the report said. “Though it remains to be seen, bond holders are likely to be paid in full to keep market access open.” Dubai's bond market went into a deep freeze following the Dubai World debt standstill. But it began thawing in the final months of 2010 after the conglomerate reached an agreement with creditors. Dubai issued $1.25 billion in global bonds in September. The next month Emaar Properties placed successfully up to $500 million in convertible notes due in 2015, increasing the size of the issue from $375 million due to strong investor demand. Moreover, Dubai Electric and Water Authority (DEWA) saw demand for a $2 billion offering oversubscribed by more than six-fold the next month. “We'd seen an improvement recently,” Tommy Trask, a Dubai-based credit analyst at Standard & Poor's, told The Media Line. “At the end of last year a number of companies including DEWA and the government of Dubai were successfully tapping capital markets. We reacted to that by raising the ratings on many of these issues.” On Friday, CityCenter Holdings, the Las Vegas casino part-owned by Dubai World, said it sold $1.5 billion of senior secured notes in a bid to restructure a portion of its debt. But analysts said the sentiment had lately showed signs of sagging. Arabtec Holding said last week it planned a five-year, $150 million convertible bond offering and a rights issue of $108.5 million. The financing reflects the company's need to raise cash in the absence of bank or other finance than an opportunity to meet investor appetite, analysts said. Trask declined to forecast the outlook for Dubai's debt market this year. But, he noted, even with the huge debt overhang, some parts of Dubai's economy are recovering. Citigroup Global Markets estimates real economic growth for Dubai will accelerate to 6 percent this year from 1.7 percent in 2010 (it shrank 3 percent in 2009, Citi estimates). “You have different industries that have different challenges,” Trask said. “Some industries will be able to tap the capital market because fundamentals are stronger and others will have a more difficult time. For instance, real estate and construction will likely have challenging market conditions.”
