Five years after the crisis that nearly derailed Dubai’s expansion plans, financial experts believe the emirate can meet its long-term capital requirements to fund ambitious growth targets.
Dubai has embarked on another phase of high growth on the back of its financial recovery in the half-decade since the November 25, 2009 debt "standstill" by Dubai World, the government-owned conglomerate that was unable to meet its agreed repayments schedule.
An analysis of its forthcoming capital requirements shows that current confirmed developments by government-related enterprises (GREs), such as Expo 2020 and Dubai World Central airport, will cost about US$93 billion, while other planned "mega-projects" could bump the total cost to as much as $200bn over the next decade.
“If the cost of the all the projects comes to $200bn, that’s a mind-boggling number, but remember it won’t all be spent in one year,” said Martin Kohlhase, the corporate finance director at Moody’s Investor Services.
Dubai’s mega-projects are scheduled to be completed over the next five to 15 years, with Expo 2020 and the new airport already committed to at a total current cost of $60bn. Others, such as Downtown Dubai and Mohammed Bin Rashid City, are medium term, slated for completion in 2020 and 2023 respectively.
There is also the plan to redevelop prime residential land by Meraas in the Jumeirah Gardens project, a project that has been estimated at nearly $90bn; a as-yet-unconfirmed project for Downtown Jebel Ali is estimated at nearly $15bn.
“Developers are more careful about launching big projects, and tend to split them into more manageable pieces,” Mr Kohlhase said. “That’s all very rational. There is less speculative building, less of the ‘build it and they will come’ approach.”
Mr Kohlhase said Dubai’s approach to debt funding by GREs had changed significantly since 2009.
“Corporates tended to be reliant on a particular creditor pool, but now it is not so reliant on banks, especially regional banks. They are maintaining a tighter lid on leverage, keeping it lower and more sustainable.”
Jason Tuvey, Middle East economist with the London-based consultancy Capital Economics, said: “The banking system is in much better health than it was five years ago and policymakers have put in place a number of regulations that should prevent banks from overextending themselves or having loans that are heavily concentrated towards certain companies and sectors.”
Dubai financiers are showing signs of a tighter attitude towards bank funding. Abdul Aziz Al Ghurair, the chairman of the UAE Banks’ Federation, said last week that all corporate borrowing – from GREs to family businesses – should be backed by strong cash flow to ensure the problems of 2009 did not reappear.
Mr Tuvey said: “I suspect that banks will provide most of the financing for the emirate’s mega-projects over the coming years. The banking system is in much better health than it was five years ago, and policymakers have put in place a number of regulations that should prevent banks from overextending.”
Amid the optimism, Dubai still has big debts at the aggregate level. The IMF estimates overall obligations by government and GREs at $142bn, greater than the emirate’s GDP of about $100bn, though the IMF is in the process of revising these figures.
fkane@thenational.ae
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