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First with Financial Comment from Arabia

IMF puts Dubai Inc debts at $109m

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Dubai Inc, a familiar term for the Dubai Government and its many offshoots has total debts of $109 billion, according to a 67-page report from the International Monetary Fund reviewed by The National newspaper today.

An IMF team visited the emirate last month and had better access to local data than most, so its conclusions are important. It has found another $11.7 billion in debts at Dubai World subsidiaries that are not included in the ongoing $26 billion debt restructuring, such as DP World.

Debt mountain

Then the IMF comes up with $14.8 billion in debts at Dubai Holding; $20.4 billion with the Investment Corporation of Dubai; $23.7 billion directly owed by the emirate and $24.4 billion owed by other government entities like the electricity company and Dubai International Financial Centre.

The National says this amounts to 130 per cent of Dubai’s GDP and of that $35 billion is actually guaranteed by the Dubai Government. This might not appear so bad as some previous debt estimates, but the repayments are coming up fast.

The IMF says Dubai Inc must repay $15.5 billion this year, $24.4 billion in 2011 and $25.1 billion in 2012.

According to the IMF rising loan defaults could require additional cash injections from the federal government into the banking sector. Its report notes that if banks had to write-off 25 per cent of their loans to Dubai World then nine local banks would require an additional $7.8 billion in capital to meet the Central Bank’s new capital requirements.

As The National newspaper points out Dubai is ‘still considered one of the world’s riskiest borrowers, riskier than even Greece or Iceland. And Abu Dhabi, thanks to its commitment to Dubai, is considered riskier than Qatar’.

Debt total

But the first stage of sorting out a debt crisis is to establish exactly the extent of the problem. Then there are the hard negotiations with the creditors.

It is impossible to know what is really going on behind closed doors as Dubai World negotiates over its $26 billion debt standstill. Suggestions that the banks take a hair-cut on their loans have been met by cries of anguish from members of the also heavily indebted UK government.

But what is quite certain is that the IMF report establishes that Dubai’s debt problems are very real and urgently in need of a resolution. That they remain relatively small within the context of the UAE as a net creditor nation also remains a fact of life, and a potential life saver.

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Written by Peter Cooper

February 28, 2010 at 11:36 am

Posted in Banking, UAE Stocks

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