Standard Chartered backs Dubai over maturing debts

Dubai's ability to handle US$18 billion (Dh66.11bn) of maturing debt next year should be boosted by improved access to global financial markets, say economists at Standard Chartered Bank.

Low interest rates in the US are likely to dampen the attractiveness of government-backed bonds from that country.

Instead, investors are increasingly seeking out the higher yields offered by issuers such as the GCC, according to a report by the bank about global economic prospects next year. "The dynamics of low interest rates [in the US] play well for the GCC," said Shady Shaher, a Standard Chartered economist for the MENA region.

"There's global demand for emerging market issuances."

Dubai is likely to need to tap global markets from next year, the bank says.

It estimates the emirate faces about $30bn of debt repayments over the next two years related to government and semi-sovereign entities.

In addition, greater demand for emerging market debt bodes well for the rest of the region as it looks to fund a flurry of large-scale projects for which ground is likely to be broken in the coming years.

While the pick-up in debt issuance reflects improving investor sentiment in the Gulf, macroeconomic conditions elsewhere are also contributing to the rush to buy regional paper.

Low interest rates in the US are persuading investors to shun the lower risk but lower returns offered by government bonds there in favour of opportunities in faster-growing economies.

Standard Chartered expects this trend to persist, forecasting the US Federal Reserve will keep interest rates low until the first quarter of 2013 because of sluggish growth and high unemployment.

"Global investors are looking for yield, and the Middle East is very much on their radar screen," said Chavan Bhogaita, the head of credit research at National Bank of Abu Dhabi. "As long as global macro-conditions are conducive, there are fundamental reasons why we should see more bond issuance from this region - whether that is [for] borrowing needs, refinancing requirements or sovereign entities building up their respective yield curves."

Project expenditure in the UAE will increase to $85bn next year, from $61bn this year, according to Standard Chartered.