Dubai is back? Time to borrow

Savvy as a market trader, Dubai knows when to strike bargain. With everyone mumbling that “Dubai is back” the government realised that now is the time to borrow.

So on Tuesday, the emirate sold $1.25bn in Islamic and conventional bonds, to appeal to a broad spectrum of buyers from the Middle East, Asia and beyond. Bankers said Dubai issued $750m of 10-year Islamic debt at 3.875 per cent and $500m of conventional 30-year notes at 5.375 per cent.

The sale, its first since last April, is yet another sign that investors have forgiven the emirate for the roller coaster ride of 2009 when it received a $20bn bailout underwritten by its oil-rich neighbor Abu Dhabi, to avert a default.

Racking up around $110bn in debt, Dubai and its related entities borrowed short to build long-term projects, sending the emirate spiraling when the financial crisis hit and the real estate market collapsed.

The move to sell 30-year debt shows the emirate is taking its chance to spread out its maturities, as concerns remain over whether the debt restructurings it has already agreed to will hold in light of a slower than expected global economic recovery.

With serious refinancing requirements in the coming years, the emirate still has work to do to manage its debt profile.

Bloomberg cites some tasty stats: Dubai’s state-linked entities owe about $7bn this year, almost $32bn in 2014 and $9.6bn in 2015, according to Bank of America Merrill Lynch estimates. That excludes restructured loans.

While Dubai’s economy looks to be thriving, with restaurants packed and hotels brimming with tourists, investors are pushing Dubai’s debt cliff to the back of their minds.

Back at the market, the emirate has got a good deal – but for investors – whether they get another spin on the rollercoaster remains to be seen.

Related reading:
Dubai tweets its global ambitions, beyondbrics
Dubai’s ‘old guard’ join the bounce back, FT