Adam Schreck

Sunday, October 11, 2009

Dubai — A support fund created to help Dubai pay its debts has “insufficient” resources to cover the billions of dollars worth of debt coming due, an analyst at credit rating firm Standard & Poor's said Sunday, putting added pressure on the struggling city-state to raise additional cash.

The sheikdom and its network of state-controlled companies amassed at least $80 billion (U.S.) in debt on projects like manmade islands and opulent high-rises during a multi year building boom that saw the city-state craft itself into the Middle East's financial, trade and tourism hub.

About $50 billion worth of that debt needs to be covered over the next three years, said Farouk Soussa, S&P's head of Middle East government ratings. A lack of government information has left investors wondering how it all will be repaid or refinanced.

“It's anyone's guess how much the government of Dubai has to support that debt,” Soussa said at a conference in Dubai. “It comes back to transparency.”

In February, the Dubai government raised $10 billion in a hastily arranged bond sale to the United Arab Emirates central bank, which is based in the oil-rich neighboring emirate of Abu Dhabi. That deal was seen be many analysts as a federal bailout of the seven-state UAE federation's most free-spending member.

Dubai officials have said part of that money, allocated to a government “financial support fund,” has gone to pay unpaid bills to contractors of state-backed companies such as property developer Nakheel.

Soussa estimates that no more than $4 billion remains in the support fund.

“From our point of view, that's insufficient,” he said. “The notion that the government will be able and/or willing to stand 100 percent by all that debt on an equal basis is wrong.”

Dubai has suggested it plans to issue another $10 billion worth of bonds before year's end — funds that could help cover a closely watched Nakheel debt of $3.5 billion coming due in December.

Investors and debt-rating agencies like S&P are eager to see whether Dubai can interest creditors beyond the central bank in the bonds.

Outside interest in the offering could be seen as a vote of confidence in Dubai's creditworthiness, and might ease the pressure on the emirate as it seeks ways to unwind the rest of its debt pile.

Nasser Saidi, chief economist of the Dubai International Financial Center, said he believes the city-state could succeed in attracting outside investors.

“From what I hear from market participants, there is interest in participating in a new Dubai issue. So I think you'll see more private sector participation,” he said.

Saidi's comments echo those made over the weekend by Mohamed Alabbar, a top adviser to the emirate's ruler and the chair of an advisory council set up to help Dubai maneuver through the financial crisis.

In an interview with CNN's Marketplace Middle East, Alabbar said the second $10 billion round of fund raising will “be majority government, some private sector,” and could be issued this month or next.

Alabbar also said Emaar Properties, a development company he chairs, hopes to have its Burj Dubai, the world's tallest skyscraper, ready to open by the Emirates national day on Dec. 2.

“I think it's an achievable date,” he said.