IMF estimate puts Dubai debt at $109bn

The IMF estimates that Dubai and the companies it controls have as much as US$109 billion of debt - equivalent to 130 per cent of its GDP.

The IMF estimates that Dubai and the companies it controls have as much as US$109 billion (Dh400.36bn) of debt - equivalent to 130 per cent of its GDP. The IMF's estimate, published this month in a report on the UAE, is larger than previous consensus projections of roughly $85bn for the combined debts of Dubai and follows a mission to the UAE last month by a dozen IMF staff members led by Masood Ahmed, the IMF's director for the Middle East and Central Asia.

"It's surprisingly large for such a shortlist of numbers," said Fahd Iqbal, the head of research at EFG-Hermes, the Egyptian investment bank, in Dubai. Analysts say uncertainty over Dubai's debt load, or more importantly its debt repayment schedule, have contributed to concerns among investors and bankers about Dubai's financial well-being. "I don't spend too much time worrying about how big the number is," said Farouk Soussa, the head of Middle East government ratings at the credit ratings agency Standard & Poor's in Dubai. "I worry more about whether it's sustainable and when it comes due."

The IMF's report and its estimate of Dubai's debt are part of a regular process of policy surveillance by the fund of its 186 member countries. Members are required to submit detailed economic and financial data to demonstrate that their policies do not threaten global economic and financial stability. The IMF's report on the UAE called for greater transparency from Dubai and for a speedy and orderly restructuring of $26bn owed by Dubai World. It also called on federal authorities to communicate a plan for helping banks deal with rising loan losses and to better co-ordinate debts between the emirates.

Dubai and its companies do not publish official information on their debts, leaving analysts and economists to puzzle out their own estimates from publicly recorded bond issues and syndicated bank loans. But some experts said the number would be likely to be even higher if it included bilateral loans between Dubai and a single bank, details of which are not typically made public. The emirate has received a combined $20bn in pledged financial aid from the UAE and Abu Dhabi. In February last year, the Central Bank purchased $10bn of emergency financing bonds from Dubai to help it avoid defaulting on debt repayments. In December, Abu Dhabi said it would buy up to $10bn more in Dubai bonds after Dubai announced on November 25 that it was stepping in to manage the restructuring of Dubai World, one of its three largest conglomerates, and would seek a standstill on repayments to Dubai World's creditors.

That announcement shocked financial global markets and touched off concerns about rising government debt. The spotlight has since shifted to Greece, prompting investors to sell euros amid doubts over whether Greece can repay its own debts or whether its neighbours in the EU will come to its aid in the way that Abu Dhabi has done in Dubai. Abu Dhabi's assurances helped calm local financial markets to some extent. But the episode has left the cost of borrowing for UAE entities elevated. The cost of insuring the Dubai Government's debt suggests that investors consider it riskier than either Greece or Iceland.

The IMF team calculated Dubai needs to come up with $15.5bn this year to repay debts. It faces $24.4bn in repayments next year, however. It faces another $25.1bn in 2014. Dubai World accounts for the largest share of the overall debt in the IMF's calculations, with $26bn in outstanding bonds and syndicated loans. Of that, however, $14.4bn is subject to the company's planned restructuring. The rest is owed by key infrastructure subsidiaries such as DP World, the ports operator, whose debts Dubai has said will continue to be repaid on schedule.

Though the IMF's figure was larger than most previous estimates, analysts said it might actually underestimate the overall extent of Dubai's debts and obligations; the figures do not include bilateral bank loans or the cost of completing unfinished property projects. Some analysts view such construction costs as a hidden liability, because if the projects are not finished, the developers responsible would need to repay investors who bought units in the schemes.

"It's cheaper to finish the projects than to pay buyers back," said Saud Masud, the head of research at UBS in Dubai. He estimates that such hidden liabilities could add as much as $60bn to any estimate of Dubai's aggregate debts. [e-mail]