DUBAI is poised to roll over a vital $10 billion debt facility with the central bank of the United Arab Emirates at a lower rate of interest, UK’s Telegraph newspaper revealed.
Rolling over the debt, which is due at the end of this week, will soothe lingering concerns over the emirate’s ability to service its immediate debts as it prepares to embark on another burst of infrastructure development ahead of hosting the World Expo 2020, it said.
“The terms of the new agreement will see the facility extended at a rate of interest lower than the 4pc which Dubai had been paying on the original facility,” a senior Dubai official told The Daily Telegraph.
The bond was agreed five years ago as part of a $20bn debt programme that was partly subscribed to by the central bank based in the federal capital of the UAE, Abu Dhabi. At the time, the money was to be used to cover existing debt obligations and outstanding bills for real estate developments.
At the peak of the financial crisis some Dubai companies, known as government-related entities (GREs), which had loaded up on debt to help pay for investments or large construction projects, struggled as financing dried up globally. Some analysts have said that Dubai and its GREs still hold total debt of around $100bn.
Dubai’s financial situation worsened when it surprised markets in November 2009 saying it needed to freeze $26bn of debt owed by one of its largest GREs, Dubai World.
The news led to a slide in world markets and prompted many experts to question the sustainability of the city’s economic model of borrowing heavily to build major infrastructure.
British banks were also heavily exposed. At the time, Royal Bank of Scotland, Lloyds and Barclays were among the lenders understood to have significant exposure to Dubai. Many British investors were also caught out by a slump in the emirate’s real estate market, which saw a 50pc drop in the value of homes. Prices have since recovered along with Dubai’s broader economy. (Daily Telegraph)
