Cost of insuring Dubai default risk at two-month low

The cost of insuring Dubai against the risk of default dropped to the lowest in almost two months.

The cost of insuring Dubai against the risk of default has dropped to the lowest in almost two months.

Bond repayments and the profitability of companies both contributed to the reduction in the emirate's credit risk.

The cost to insure Dubai's debt against default dropped to 317 basis points on Monday, the lowest since June 7, according to credit default swap prices from the data provider CMA.

It stood at 327 basis points on Wednesday, down about 50 per cent from a high of 655 in November 2009.

The emirate has benefited from government stability - in contrast to the political upheaval that recently swept other parts of the Middle East.

Dubai "has fully regained its status as the regional hub, doubling as a safe haven", said Philippe Dauba-Pantanacce, a senior economist for the Middle East based in Dubai at Standard Chartered.

Economic growth in Dubai could accelerate to about 2.8 per cent, the IMF forecast in a report published in May. That comes after growth of 2.4 per cent last year and a contraction in 2009, according to government statistics.

Dubai Holding Commercial Operations Group, a unit of one of the emirate's three main state-controlled holding companies, announced last month it had repaid a 250 million Swiss franc (Dh1.19 billion) bond and was committed to meeting future obligations.

Dubai Group, an investment company and subsidiary of Dubai Holding, is in talks with banks to alter the terms on US$10bn (Dh36.72bn) of liabilities, while Dubai World agreed with creditors on its restructuring this year.

Meanwhile, Tamweel, along with its rival Amlak Finance, had helped finance Dubai's building spree during the boom years until the middle of 2008 and suspended lending after debt markets froze in the crisis.

Tamweel "is an important lever for the Government to try and add life to the mortgage and therefore real-estate market", said Akber Khan, a director at Al Rayan Investment.

"Tamweel re-entered the market aggressively and other large local and foreign banks have stepped up too," he added.

* with Bloomberg News

Published: August 5, 2011 04:00 AM


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