DUBAI: Abu Dhabi's $10 billion bailout Monday of government-owned conglomerate Dubai World will go a small way to tackle the emirate's debt pile, experts say. Although the much-needed cash injection provided a welcome boost to investor confidence on the region's stock markets, analysts warn that concerns over Dubai and its debt levels will linger.
"Fundamentally, little has changed for Dubai's outlook," said Fahd Iqbal, Gulf strategist at Egyptian investment bank EFG-Hermes, which estimates that Dubai's total debt, including bilateral loans for Dubai Inc. companies, could be as high as $150 billion.
Abu Dhabi pumped $10 billion into Dubai's financial support fund Monday, part of which will be used to pay off creditors of a $3.52 billion Islamic bond issued by Dubai World's real estate unit Nakheel.
Dubai rocked world markets in late November when it requested a freeze on $26 billion of debt payments by Dubai World, in order to restructure the group. This means that about a further $22 billion still needs to refinanced and creditors are expected to meet with Dubai World on Dec.21 to hammer out a deal.
International investment bank UBS AG said that although the bailout "may provide short-term market relief", an additional $32 billion in loans and bonds repayments still remain outstanding over the next two years.
"Moving away from the debt repayment uncertainty, we focus investors attention back to fundamental economic and systemic challenges which have not changed materially," said Saud Masud, head of research at UBS in Dubai.
RISK PREMIUM
Of the greatest concern to many analysts, is the debt levels of Dubai Holding, the personal investment vehicle of the ruler, Sheik Mohammed bin Rashid al-Maktoum and Dubai World's investment unit Istithmar.
"We continue to see risk of further debt problems emerging in the coming months and quarters, particularly from Dubai Holding and Istithmar and hence we are keeping our elevated equity risk premium," said EFG's Iqbal.
Dubai Holding, which includes investment arms Dubai International Capital and Dubai Group, has built up $9.7 billion in debt during a five-year buying spree, according to Barclays Capital. Of this, $1.9 billion matures next year.
"We believe that the Dubai Government's actions have introduced the risk that restructuring of other corporates could follow. We would focus on those with weak fundamentals and upcoming maturities and we view Dubai Holdings as being most at risk," it said in a note shortly after Dubai World's debt request late November.
Dubai's obligations extend much further than Dubai World and the rest of its government-related entities. It also owes billions of dollars to construction firms and contractors. In its statement, Dubai said it will use some of the $10 billion to meet the obligations of Dubai World's contractors, it is unclear how it plans to address the .
Earlier this week, Japan's The Nikkei newspaper reported that Dubai owes Japanese nonfinancial companies around $7.5 billion. On Friday, British consulting and business group Mouchel Group PLC (MCHL.LN) said it would close its Dubai operations, saying there was uncertainty over the recovery of GBP10 million it is owed.
"What now remains to be seen is how Dubai World, and the Government of Dubai will restructure their respective remaining liabilities," said Faisal Ghori at ME Ventures.
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