Dubai sets $5 bln bond programme; plans new issue


DUBAI |
Sun Jun 12, 2011 6:54pm IST

DUBAI (Reuters) – Dubai, which is planning a benchmark sovereign dollar issue in coming days as it seeks to bridge a budget deficit, has set up a new $5 billion framework for future debt issuance.

The Gulf Arab emirate, known for man-made palm-shaped islands and the world’s tallest tower, has been scrambling to put finances in its state-owned conglomerates back in shape since its 2009 debt crisis.

The unrated emirate, whose overall debt load is estimated at $115 billion or 140 percent of its economic output, has hired Mitsubishi UFJ Securities (8306.T), Standard Chartered Bank (STAN.L) and UBS AG (UBSN.VX) as arrangers and dealers for the new Euro Medium Term Note programme, the prospectus showed on Sunday.

Emirates NBD ENBD.DU and National Bank of Abu Dhabi NBAD.AD will be the dealing banks for the bond programme.

“We see … the programme as a positive step. It gives improved transparency of fiscal and debt positions and developments,” said Monica Malik, chief economist at EFG-Hermes.

“Moreover, this external bond programme will also help reduce reliance on domestic funding, although the rate of interest will be vital,” she said.

Last week, Dubai’s department of finance announced it planned to come back to the debt market with a potential dollar bond issue, buoyed by tightening spreads and an oversubscribed bond from its flagship airline recently.

Appetite for Dubai debt has been rising in recent months, with the emirate seen as a safe haven as social unrest spread to nearby Bahrain, Oman and Yemen.

The United Arab Emirates and Qatar are the only two states in the Gulf, the world’s top oil exporting region, which have not seen any protests inspired by uprisings that toppled leaders in Egypt and Tunisia.

Dubai’s budget deficit more than halved to 6.02 billion dirhams ($1.64 billion) or 2 percent of gross domestic product last year from 2009, coming slightly above the original plan, the prospectus showed.

SHRINKING GAP

The shape of Dubai’s finances is expected to improve this year helped by banking sector stabilisation, trade recovery, oil prices at around $100 per barrel as well as austerity measures.

“Revenue is likely to exceed that set out in the budget,” said Simon Williams, chief economist at HSBC. “The outturn will depend on actual spending levels.”

In January, Dubai’s ruler approved a 2011 government budget with a lowest deficit in four years of 3.78 billion dirhams, or 1.3 percent of economic output, with revenue set at 29.91 billion and expenditures of 33.7 billion, slightly below 2010.

The emirate, which lacks oil wealth of neighbouring Abu Dhabi, has no current plans to implement corporate or income taxes, the prospectus said. Various fees from housing to tourism make up around 62 percent of its budget.

Besides customs duties, Dubai levies a 20 percent income tax on profits earned by foreign banks.

The public sector plays a leading role in the Dubai economy, which accounts for 28 percent of the overall output of the UAE, the world’s No.3 oil exporter, but the direct government spending amounts to just 10 percent of GDP.

A government official said in May that Dubai, bracing for some $30 billion in debt redemptions over the next two years, plans to cut state spending by 20 to 25 percent until 2013 to narrow its funding gap.

Dubai’s direct debt was 115.4 billion dirhams ($31.4 billion), or 38 percent of 2010 GDP as of May 20, according to the document, up from 105.5 billion at the end of July 2010.

Dubai’s trade and property-based economy expanded by 2.4 percent last year, the prospectus showed citing preliminary data, higher than a previous 2.2 percent estimate by the emirate’s statistics office. It shrunk by 2.4 percent in 2009.

(Additional reporting by Dinesh Nair; Editing by Hans Peters)