Lifeline and profit give UAE's Jafza hope

Jebel Ali Free Zone Authority begins talks with banks to secure a funding lifeline ahead of a $2bn debt repayment due later this year, as the port operator reports sharply higher profits.

Jebel Ali Free Zone Authority reported a bounce in net profitfor last year and said it had begun talks with a consortium of banks to secure a funding lifeline ahead of an upcoming debt repayment, as the outlook brightens for Dubai's highly indebted holding companies.

The port operator, known as Jafza, faces a November repayment deadline when a Dh7.5 billion (US$2.04bn) sukuk matures. Repayment of the Islamic bond had been viewed by investors as a significant hurdle for the emirate's markets this year.

The company, which is fully owned by Dubai World, had a net profit of Dh241.6 million last year, an increase of 72.9 per cent from 2010.

Jafza "is in advanced discussions with a group of financial institutions in relation to a financing package", said Hisham Abdullah Al Shirawi, the company's chairman. "The use of the proceeds will be solely the redemption of the certificates ahead of the scheduled redemption date."

Mr Al Shirawi added that the company's board was "confident" of repaying the sukuk.

Jafza plans to issue new Islamic securities before the end of the third quarter of this year.

The move was "very good news" for Dubai's markets, said Mark Watts, the head of fixed income at National Bank of Abu Dhabi.

"When originally Dubai faced its problems post-2008, there were … entities highlighted as having a business model that was not throwing up sufficient cash to replace the debt," Mr Watts said.

"People have been watching quite closely what the government-related entities in Dubai are doing to try to raise that cash. It's always nice to see that cash flow is positive [at Jafza]. Although there's not enough cash in the pot to repay the debt, the likelihood of finding an alternative funding source is much, much higher."

Jafza reported a 3 per cent increase in operating profit alongside lower financing costs, with charges from bad debts to related parties incurred in 2010 not repeated last year.

Jafza is among three government-related holding companies facing debt deadlines that had been viewed as challenging at the start of the year.

Dubai Holding Commercial Operations Group repaid a $500m bond that was due in February. DIFC Investments, the investment portfolio of the emirate's financial free zone, is also said to be in talks to refinance $1.25bn of debt that is due next month.

Against the brightening backdrop, stocks on the Dubai Financial Market have soared 20.5 per cent so far this year. Borrowers in the Gulf need to refinance about $60bn of debt this year, according to Royal Bank of Scotland.

However, RBS expects no significant problems for borrowers in generating the required funding, as had previously been thought possible.

* additional reporting by Frank Kane

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