Following Dubai winning its bid to host the World Expo 2020, there’s been a lot of celebration and optimism around the event. Yet, with the high cost of hosting such an event, financial experts are turning their focus to the elephant in the room, the emirates debt. At the moment the emirates debt is estimated to be around US $103 billion, and is expected to increase with renewed borrowing needed to fund projects for the Expo.
With an estimated $43 billion needed in infrastructure projects to prepare for the Expo, the government of Dubai has indicated that a considerable amount of funding for the event will probably come from borrowing, most likely from state-linked firms. According to the IMF, the borrowing is expected as the emirate is set to pay off $85 billion in debt before 2017.
Even though Dubai has been curbing its levels of debt since Dubai World, a state-controlled firm, called for a freeze on $25 billion of debt in November 2009, the levels of government debt and state-owned companies is still quite sizable, having increased by $13 billion from last year to almost $103 billion, as according to estimates by Barclays.
Yet with the overall excitement from Dubai winning the bid for the Expo, along with gains in the economy, have, within the bond market, helped push Dubai’s credit to right levels. Yet, these high levels of debt could increase borrowing costs for Dubai.
However, a great deal of focus is being targeting on $20 billion of debt which was borrowed from the government of Abu Dhabi and other domestic institutions as a result of the financial crisis in 2009. The total amount comes from $10 billion borrowed from the Central Bank, $1 billion split between two banks in Abu Dhabi, and another $9 billion from the government of Abu Dhabi. The good news is Dubai is on track to paying back the debt and there are no talks to refinance the debt with Abu Dhabi.
But it’s not just the government that’s coping with debt; many state-owned companies are also facing debt payments, which are coming up. Dubai Group is still restructuring $10 billion of debt, aiming for repayments to be within the next three to 12 years. Dubai World is also coping with debt, but has managed to deal with a $4.4 billion loan due in two years by selling off some of its assets.
Yet, companies such as Borse Dubai, with $1.8 billion in loans due, and Nakhell with $1.9 billion, are expected to be refinancing according to a recent report by Barclays.
Even though the debt repayment schedule looms over Dubai, most companies are going to be able to pay back the loans, and those who aren’t will simply refinance those loans, while all companies are expected to borrow again in the next year to prepare for the Expo and make the proper investments, which should turn by 2020. So for now there’s little need to worry as the recovery from the 2009 financial crisis is still taking its course, all while Dubai’s economy continues to grow and show no signs of stopping. That being said, now is the right time to start thinking about new investment opportunities in anticipation for an economic boom from the Expo. So talk to Globaleye and find out what’s right for you and your portfolio.