Reuters/Dubai
Proceeds from Dubai’s new $1.25bn, two-tranche Islamic bond provide enough funds for the Gulf emirate to manage its budget deficits and refinancing plans, a senior government official said yesterday. Dubai priced on Wednesday a $600mn 5-year tranche at 4.9% and a $650mn 10-year tranche at 6.45% and the department of finance said the issues drew orders of more than $4.5bn. “This sukuk issuance provides us enough liquidity to manage our budget deficits and refinancing plans proactively,” Abdulrahman al-Saleh, director general at Dubai’s Department of Finance said in a statement. “We continue to examine ways to optimize our funding strategy by diversifying our funding options and extending maturities,” he said. Al-Saleh noted Dubai had been able to reduce its cost of funding on the sukuk, compared to previous debt issuance of similar tenors. The emirate is still restructuring some debt at state-linked firms, including two significant maturities in 2012 from Jebel Ali Free Zone (JAFZA) and DIFC Investments, which have to repay a combined $3.25bn this year. Its biggest restructuring - a $26bn debt deal at flagship conglomerate Dubai World which rattled global markets in November 2009 - was signed in 2010. Dubai, one of seven members of the UAE federation, has been recovering from the depths of its 2009-2010 debt crisis helped by strong trade flows with Asia, tourism and its safe-haven status amid a wave of social unrest in the Middle East and North Africa last year. “Investors were happy with the steps taken by the government over the last three years to counter the impact of financial crisis and prudent measures to control costs and manage its budget deficit,” al-Saleh said. The emirate’s budget deficit narrowed sharply to 3.7bn dirhams ($1bn) last year, helped by higher oil income and lower spending on development projects, a prospectus for the latest sovereign bond showed this week. That represents 1.2% of 2010 gross domestic product, according to Reuters calculations. GDP data for 2011 has yet to be released. A shortfall of 1.8bn dirhams is planned for 2012, the prospectus reiterated. Dubai’s direct government debt stood at 113.6bn dirhams ($30.9bn) at the end of March, the prospectus also showed. However, analysts polled by Reuters in March put the emirate’s overall debt including government-owned firms at an estimated $118bn, or 144% of GDP. Dubai which accounts for nearly a third of the UAE’s GDP, is aiming for economic growth of 4.5% this year, up from an estimated expansion of more than 3% in 2011, Dubai’s top official said in February. But worsening of global financial conditions could make it more difficult to roll over some of the maturing debt of UAE government-linked entities, the International Monetary Fund said in March, with about $32bn of sovereign and government-linked debt estimated to mature in 2012, of which $15bn in Dubai.Dubai’s new bond sale is the first time it tested credit markets since June 2011 when it issued a 10-year bond worth $500mn, attracting orders over $1.8bn.