Dubai has no plans to return to the international debt markets in the near future, according to Abdul Rahman al Saleh, the Director General of the emirate's Department of Finance. He was speaking on the government-owned Dubai TV after the emirate last week successfully raised US$1.25 billion (Dh4.59bn) of medium-term debt in two tranches. The issue, which was Dubai's first venture into the capital markets since just before the Dubai World debt crisis last November, was four times oversubscribed.
The proceeds of last week's bond issue are to be invested mainly in the expansion of Dubai International Airport and construction at Al Maktoum International Airport. "Dubai has no plans to issue more bonds in the near future because available resources and operating revenue are currently sufficient and achieve the required goals, whether for operational expenses or capital expenditure," Mr al Saleh said.
The recent bond issue was undertaken not because of pressure on resources but "to consolidate the emirate's financial position in global markets", he said. "We chose to issue bonds in global markets to maintain our relationship with world investors." The strong demand for such bonds was a clear "response to all those who have doubted Dubai's ability to deal with investors and enter the global market". He said the government had always been confident of the success of the issue.
The bond issue was planned early this year in a process that included a visit by a government delegation to Europe and Asia to meet investors "face to face". Mr al Saleh said the issue attracted more than 360 investment applications, more than half of which were for the second part, which was valued at $750 million with an interest rate of 7.75 per cent for 10 years. The first tranche of the issue, for $500m, attracted nearly 170 applications. A new feature of this issue was the "strong demand from Asian investors", Mr al Saleh said.
"These investors accounted for nearly 35 per cent of the total compared with 30 per cent for European investors and 30 per cent for the Middle East." Mr al Saleh said the money raised would be used in funding infrastructure projects, particularly "the most important and strategic airport expansion project". "This includes the expansion of the Dubai International Airport or the Maktoum airport. We consider the aviation sector as one of the main pillars of Dubai's economy. Despite the repercussions of the global economic crisis, it continued to record good growth levels," he said.
Asked about the budget deficit of Dh5.99bn forecast for this year, Mr al Saleh said Dubai could have approved a surplus budget but at the cost of most infrastructure projects. "We opted for a budget deficit because we believe in the importance of completing all infrastructure projects, including airports and the metro. Completion of such projects is the best strategic option for us in the long term, because they constitute a strong pillar for our economy in the future."
Mr al Saleh said he expected government expenditure to record "a sharp decline after the completion of those projects this year or in 2011". "This will consolidate the budget position and allow the Government to develop new facilities in the future."
