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Last updated: June 4, 2012 3:11 pm
Dubai’s financial centre has raised a $1.04bn loan to allow it to pay off an upcoming $1.25bn Islamic bond on June 13, removing the single biggest debt challenge to the emirate in a year when it has to deal with $14bn in maturing obligations.
In raising the loan and paying the bond on time, Dubai authorities have underlined the increasing confidence of local and foreign lenders in the emirate and its economic recovery in the wake of its 2009 debt crisis.
The sharia-compliant loan is secured against the government-owned Dubai International Financial Centre’s property portfolio, which analysts consider to be some of the Gulf’s most premium real estate.
“We have disposed of non-strategic assets, giving us the remaining $250m in cash for the sukuk from these disposals,” said Shahli Akram, managing director of DIFC Investments, declining to elaborate on the deals.
People aware of the matter say Investment Corporation of Dubai, the government’s holding company, is the buyer of two of DIFCI’s assets, SmartStream Technologies and an empty building in the financial district.
Bankers say the government has made a shortfall guarantee on the value of future asset disposals that the DIFCI plans to make to help pay back the loan.
But Mr Akram says the government’s backing is limited to a further extension of a loan granted to the DIFCI two years ago. “We manage our affairs independently of the government,” he said.
The DIFC’s investment arm is now expected to pay off the sukuk before or as it matures next week.
The loan “has been achieved on competitive terms and provides further recognition of the strength of the DIFC as an international financial centre”, said Abdullah Saleh, the governor of DIFC. The loan was priced at 380 basis points above UAE and London benchmark interest rates.
Concerns over Dubai’s debt pile of $100bn are receding as the government and its related entities have been able to refinance maturities and raise new debt.
The government in April raised $1.25bn via a sale of Islamic bonds. Dubai Holding, a conglomerate owned by the ruler of Dubai, paid off a $500m sukuk earlier this year.
Another government-owned company, Jebel Ali Free Zone, has launched a roadshow and may raise a new sukuk as part of a refinancing package for its $2bn sukuk due in November, say officials and bankers.
But some observers are concerned that the government is merely pushing back the pain to a later date as the trade and tourism-focused economy stages a recovery thanks to the emirate’s haven status during the Arab spring.
Other troubled entities, such as Dubai Holding’s Dubai Group, have yet to agree restructuring deals with lenders on debts of around $6bn.
The DIFC has over the past decade emerged as the region’s financial hub, thanks to the emirate’s liberal lifestyle and strong air connections provided by Dubai’s busy airport and fast-growing airline, Emirates.
The DIFC Investments fund, which made a series of debt-backed investments before the financial crisis hit Dubai hard, made a $130.5m profit in 2011 after incurring a loss of $272m the previous year as it started to make disposals.
DIFCI last year sold Despec International, an IT distribution firm, for $27m.
The DIFC, which rents office space and licenses financial institutions and service companies at its tax-free financial centre, has seen steady growth through the financial crisis as it attracts more banks from fast-growing emerging markets in Asia.
DIFC institutions have recorded a sharp 76 per cent increase in deposits in 2011 as regional unrest prompted a flight to safety within the centre.
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