Dubai debt repayments to hit $50bn by 2012

Dubai Debt Repayments

Dubai-based government related entities (GREs) are likely to stump up accumulative debt repayments totalling US$50 billion over the next three years, according to Standard &Poor's.

S&P's estimate of the current total amount of debt owed by the Dubai government and its various GREs is between 80 to US$90 billion, but it also added that the margin for was significant "given the lack of official statistics." S&P has issued a number of credit rating downgrades to Dubai GREs over the past few months.

The agency points out that more significant than the quantity of debt outstanding was the relatively short-term structure of the debt. "According to approximate data contained in the report, cumulative repayments for Dubai-based GREs over the coming three years are significant and amount to nearly US$50 billion, which is equivalent to around 70 percent of Dubai's current estimated GDP," Standard & Poor's said in a new report published on Thursday.

"The majority of this debt will come due in 2011 and 2012," the agency added.

While it is fully expected that the Dubai government will support its GREs in the future, the economic crisis and difficulties surrounding the region's recovery mean that the government may be required to "distinguish among potential recipients more than assumed in prior years."

Standard & Poor's credit analyst Farouk Soussa said, "We see a long track record of "ongoing" government support to Dubai-based GREs in the form of land grants, provision of bespoke infrastructure to support projects, and the like."

"However, in terms of extraordinary support to GREs to help them avoid financial distress, the track record is much shorter, in our observations, given the relative health of the Dubai economy and the ease of obtaining market financing prior to mid-2008. That said, there have been several instances of extraordinary government support in the past year."

As of yet, the Dubai government have not revealed whether they will be supporting the GREs with their repayments in the immediate future, despite the pledge to support them in the future.

Sousa added, "More generally, we consider the lack of transparency with respect to the government's strategy in dealing with the financial obligations of its GREs as creating significant uncertainty."

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