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Dubai on track to tackle $78bn debt, analysts say

Dubai International Financial Centre. The emirate's GDP grew by 3.3% in the first nine months of 2023 Dubai Tourism
Dubai International Financial Centre. The emirate's GDP grew by 3.3% in the first nine months of 2023
  • Big borrowing in 2009 crisis 
  • $10.6bn to be repaid in H1 2025
  • Fiscal situation stable

Dubai’s state-run conglomerates have $78 billion in loan repayments due over the next few years, according to new research, but analysts have told AGBI the emirate is on track to cover the debts. 

The loans date back to Dubai’s 2009 debt crisis and equate to 67 percent of its GDP, said consultancy Capital Economics in a report published last week. Two-thirds of the total is due by the end of 2028. 

A sum of $10.6 billion is due in the first half of 2025, according to a repayment schedule in the Capital Economics study.

However, analysts have said the emirate can meet these obligations.

Juili Pargaonkar, a global rating analyst at S&P, pointed to the Dubai government’s “improving fiscal flexibility”, attributing it to the formation of the Dubai Investment Fund to oversee government investments and the Debt Management Office, as well as “declining [public sector] debt and active monetisation of assets”.

Dubai Investments – whose biggest shareholder is the sovereign wealth fund Investment Corporation of Dubai (ICD) – plans to exit four of its investments via asset sales in the coming year, Bloomberg reported last week. Dubai Investments holds stakes in about 30 companies.

ICD is one of three large government-related entities (GREs) that account for more than $72 billion of the Capital Economics figure. The other two are Dubai World and Dubai Holding. 

These companies borrowed extensively in the years leading up to the global financial crisis, mainly to fund large real estate projects. When the credit crunch hit, property prices crashed, leaving many GREs struggling to repay debts.

The emirate owed an estimated $120 billion at the peak of the crisis, with GREs shouldering much of the burden. Dubai World, which at the time owned developer Nakheel and others, had debts of $59 billion.  

In response, Abu Dhabi provided a $10 billion loan, matched by $10 billion from the UAE Central Bank. 

Dubai’s government last year settled some of its outstanding loans, reducing sovereign debt to $31.5 billion, according to Capital Economics.

The GREs have also been making repayments. Dubai World said in 2020 it had made a final payment of $8.2 billion, while ports operator DP World repaid $13.4 billion last year.

But a significant amount remains unpaid, placing the onus on Dubai's real estate and hospitality sectors to perform in 2024, Capital Economics said.

While residential property prices are booming, large numbers of units are due to be delivered over the coming years, the report pointed out. The increase in supply could lead to a softening of rents and house prices and a weakening in state revenues.

“This could ultimately harm [GREs’] ability to service their large upcoming debts," the report said. That might fuel "fears of a more systemic crisis”. 

But Pargaonkar said Dubai’s economy was “stable enough for GREs to manage the rollover risks”.

S&P estimates that Dubai’s public sector debt, which includes direct government and GRE debt, will shrink to 83 percent of GDP by the end of 2023, down from its previous forecast of 100 percent

Robust GDP growth – 3.3 percent between January and September 2023, according to UAE state news agency Wam – is likely to strengthen the fiscal situation and any real estate slowdown will be “mild”, Pargaonkar added.  

Monica Malik, chief economist at Abu Dhabi Commercial Bank, said Dubai had improved its stability by reducing debt and building reserves. It is putting AED5.5 billion of its 2024 budget into reserves. 

She also pointed to its “rapid recovery from the pandemic, strong profitability of GREs and their higher dividend payouts”. 

Dubai Media Office has been contacted for comment.

How the GREs are performing

Investment Corporation of Dubai

  • Portfolio includes Emirates airline, Emirates National Oil Company and Emaar Properties 
  • Revenue reached “record” $72.8 billion in 2022 and “best ever” net profit of AED26.1 billion, ICD said last year

Dubai Holding

  • Portfolio includes Dubai Properties, Jumeirah Hotels and Resorts, Tecom Group, Arabian Radio Network and retail destinations Bluewaters, JBR and Souk Al Madinat
  • Net profit for 2022 rose 37 percent year on year to AED3.7 billion. Revenues were not disclosed   

DP World

  • Owns or manages port operations and free zones in 75 countries, including Dubai’s Jebel Ali Port and Mina Rashid Cruise Terminal 
  • Revenue for 2022 grew 58 percent year on year to $17.1 billion; profit grew 27 percent to $1.4 billion

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