DUBAI – Dubai has hired banks to advise it on its comeback to the international debt markets as the Middle East trade, finance and tourism hub seeks to bolster finances badly hit by the coronavirus pandemic.
It is planning to issue U.S. dollar-denominated 10-year Islamic bonds, or sukuk, and 30-year conventional bonds, a document issued by one of the banks leading the deal showed.
The planned deals will be of benchmark size, which generally means upwards of $500 million, as part of a $6 billion sukuk issuance programme and of a $5 billion bond issuance programme, the document showed.
A banking source estimated the issuance could be around $2 billion.
The new deal – which would be the emirate’s first public debt issuance since 2014 – comes amid a sharp economic downturn for the emirate, which has revived concerns over its financial soundness and brought back memories of the 2009 debt crisis.
Back then, the global credit crisis caused Dubai’s real estate market to crash, threatening to force some state-linked companies to default on billions of dollars of debt.
Details of the issuance emerged as aides to U.S. President Donald Trump and Israeli Prime Minister Benjamin Netanyahu flew to the United Arab Emirates to put the final touches to a pact establishing open relations between the Gulf power and Israel.
According to a bond prospectus dated July 29 and seen by Reuters on Monday, Dubai renewed for five years in 2018 and 2019 $20 billion dollars of debt provided by its oil-rich neighbour Abu Dhabi and the United Arab Emirates central bank in the aftermath of the 2009 crisis.
As of the end of June this year, the Dubai government had nearly $34 billion in total direct debt, the prospectus said, adding that there was no consolidated estimates for the total debt outstanding of its government related entities (GREs).
“As such, the overall financial position and potential future financing requirements of Dubai’s GREs may not yet have been fully identified,” it said.
London-based Capital Economics, a research firm, estimates Dubai’s government and GREs have a total of about $15.9 billion in debt maturing by the end of next year, of which $13.7 billion is due from GREs. Dubai’s economy may contract by around 12% this year, it said.
As the coronavirus pandemic hit vital economic sectors of the emirate, Dubai this year has raised over $3.6 billion in debt through several instruments, the prospectus showed.
This included a 7.7 billion dirhams ($2.10 billion) Islamic facility, a $275 million seven-year bilateral loan, a 1 billion dirhams eight-year loan, and two fixed income instruments worth 1 billion dirhams and $700 million.
Part of the money raised was used to cover expenditures related to Dubai Expo 2020 – which was postponed by one year due to the coronavirus outbreak – and to provide financial support to state-owned airline Emirates, which faced a cash crunch caused by the COVID-19 pandemic.
The department of finance declined to comment. Dubai’s state media office and airline did not immediately respond to Reuters requests for comment.
($1 = 3.6728 UAE dirham)