Borse Dubai opts for extension

Borse Dubai has exercised an option to extend a $2.5 billion syndicated loan facility by a year.

Borse Dubai has exercised an option to extend a US$2.5 billion (Dh9.18bn) syndicated loan facility by a year. The holding company for the Dubai stock exchanges raised the loan in February last year from lenders that included Dubai Islamic Bank, Emirates Bank International and National Bank of Abu Dhabi Borse Dubai said it had informed the participating banks of the decision to extend the loan, which was to expire next month.

The disclosure comes as the emirate contends with debts of more than $13bn linked to its related entities coming due this year. The appetite of international investors for Dubai debt is likely to remain limited to those companies with enough quality creditworthiness, analysts say. "I don't expect any major debt capital markets issuances coming out of Dubai this year as only the high-quality creditworthy companies will attract any investors, and there are only a small handful of those names," said Philipp Lotter, a senior vice president at Moody's Investors Service in Dubai.

Before 2008, Dubai was the leading force behind debt capital market activity in the region, with its diversified companies tapping into markets to fund the emirate's ambitious expansion plans, from property to power projects. But the attractiveness of Dubai debt has deteriorated since the global financial crisis stunted the emirate's growth prospects and uncertainty emerged about the level of sovereign support for its firms after the financial troubles of Dubai World.

With a further $50bn needed to be refinanced by Dubai's portfolio of companies over the coming three years, the emirate will continue to be preoccupied with restructuring concerns, Mr Lotter said in a Moody's research note. "Dubai companies have to demonstrate a strong track record of financial performance through a cycle," he said. "Many in Dubai have not been able to do that and they have shorter dates of maturity."

DP World, Emirates Airline, Dubai Electricity and Water Authority and Dubai Aluminium are among the companies Mr Lotter said were able to demonstrate sound fundamentals likely to attract investors. Uncertainties about the ability of some Dubai companies to meet debt obligations has led to a string of downgrades by Moody's and fellow ratings agencies Standard & Poor's and Fitch Ratings. Although Moody's sees the outlook for corporate credit quality in the Gulf this year as one of slow recovery, it warns that the challenges facing Dubai will continue to dampen sentiment and new issuance in the region.

Investor concerns about the size of the debt may hamper the ability of government-controlled companies to gain access to bank credit, the investment bank EFG-Hermes warned in a report. "The limited availability of credit will provide a hurdle to the implementation of projects," said Monica Malik, the chief economist at EFG-Hermes in Dubai. EFG Hermes said it expected to see further cancellation of non-viable projects, especially in the property sector, leading to a decline in investment levels.