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Dubai still cleaning up bad debts that triggered panic



Dubai: Dubai is still clearing up the mess from a near default almost five years ago that sent shockwaves through global markets, and the worst stock-market selloff since 2008 is unlikely to derail the process.

Islamic mortgage provider Amlak Finance proposed a new restructuring plan to creditors on June 5, its spokesman said, which could end years of negotiations on about $2.7 billion of debt. Nakheel, the property developer that helped spark Dubai's financial crisis in 2009, said last week it will repay $1.5 billion of bank loans early. The plans were outlined during the worst month for the emirate's stock market in almost six years, when the DFM General Index tumbled 22 per cent.

"While the Dubai equity market has been in decline, most Dubai credit has held up," Deepti S. M., a Bangalore-based credit analyst specialising in property at SJS Markets, said by telephone on Tuesday. "Companies are trying to restructure or refinance while the bond and loan market conditions are good."
Amlak's debt negotiations are among the last to be resolved by the emirate after Dubai Group, an investment company owned by the emirate's ruler, completed a $6 billion deal with lenders in January. Cleaning up the legacy of toxic debt amid economic growth helped drive Islamic bond yields to record lows in June.

Economic progress
Dubai, the second-biggest of seven emirates that make up the United Arab Emirates, and its state-owned companies accumulated more than $110 billion of debt as it sought to develop its real-estate industry and transform into a tourism and financial services hub, the International Monetary Fund estimates.

Real-estate market crash
The emirate's economy shrank after credit dried up amid the global financial crisis, sparking one of
the world's worst real-estate market crashes.

Amlak will make an initial payment of about Dh2 billion ($545 million) if its deal is agreed, with the rest of the debt extended over 12 years for commercial depositors, with about Dh1.4 billion turned into a convertible instrument, its spokesman said, declining to be identified because of company policy. Nakheel said it will repay bank loans in August that aren't due until 2018.

"Notable progress has been made on the economy," Apostolos Bantis, a Dubai-based credit analyst at Commerzbank, said by phone. "The refinancing of the emirate's debt with Abu Dhabi, and the general outlook provides investors with confidence to keep buying Dubai assets."

Dubai refinanced $10 billion of bonds owed to the central bank and a loan of the same amount due to Abu Dhabi's government at a fixed interest of 1 percent on both, state-run news agency WAM reported in March. The new debt is renewable after five years.

Limitless extension
Dubai's economy may expand 4.7 per cent this year, Mohamed Lahouel, chief economist for the Dubai Department of Economic Development, said in March. That would be the fastest pace since 2007. The yield on its Islamic notes due May 2022 were little changed at 3.49 per cent on Tuesday, close to a record low of 3.39 per cent on June 9.

Not all borrowers in the emitrate have been benefiting. Limitless has requested a two-year delay in payments.

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