Some of Dubai’s biggest companies will need state-funded bail-outs in 2012 if large-scale defaults are to be avoided, Standard & Poor’s (S&P) has warned.
By Louise Armitstead
8:09PM GMT 29 Dec 2011
The credit rating agency has said that five conglomerates, including Dubai’s financial services zone’s investment arm and the main electricity and water company, will “struggle” to service their vast debt piles by themselves.
In a note S&P said that the five Dubai government-related entities (GREs) it rates are “up against significant risks from the weakening global economic outlook, the Arab Spring, and the volatile equity and bond markets.” The agency added: “These risks have raised concerns as GREs face large debt maturities and refinancing needs in 2012.”
The fears will compound the outlook for global banks, some of which have a high exposure to Dubai debt. The emirate’s total debt load is about $119.8bn (£77.7bn), according to a report by Bank of America Merrill Lynch. Some $15bn needs to be repaid or refinanced in 2012, according to the bank.
The Dubai Electricity and Water Authority is at “very high” risk of needing extraordinary government support, the rating agency said. DIFC Investments, the investment arm of the Dubai International Financial Centre, is at “high” risk.
The Jebel Ali Free Zone, a tax-free business hub set up in 1985 to attract foreign investment, is also “likely to struggle without some form of government support”, according to S&P. Jebel Ali claims to be one of the fastest-growing free zones in the world, hosting 6,400 companies, including more than 120 of the Fortune Global 500 enterprises. The government of Dubai has tried to contain global concerns about its financial stability since Dubai World, one of the emirate’s flagship holding companies, shocked investors by asking for a debt standstill in November 2009.
Abu Dhabi’s government stepped in with $20bn to help prop up Dubai World and Dubai Holding. In the note, S&P said: “Given the Dubai government’s involvement in various debt restructurings in the past three years, we think the main issues at this stage are which GREs the government is likely to support and, equally important, whether support would be timely and sufficient to avoid a default.”
In further signs of the ongoing debt problems, Aldar Properties, the Abu Dhabi company behind ambitious projects such as the Ferrari World theme park, said it had agreed to offload some of its prized property assets to the government for $4.57bn in a radical financial restructuring.