Investors warned against Dubai bail-out bets

Moody’s, the credit ratings agency, has cautioned investors against betting on further bail-outs of Dubai’s state-linked bonds by the emirate’s wealthier neighbour, Abu Dhabi.

State-owned Dubai World rattled global markets in late November by seeking to restructure about $26bn of its debts, but Abu Dhabi at the last minute stepped in with a $10bn loan. This allowed the settlement of a $4.1bn bond repayment due on December 14 at Nakheel, Dubai World’s developer.

Officials have publicly insisted that the bail-out should not be seen as a precedent, but Dubai is understood to be considering the full repayment of other bonds at Dubai World.

Bankers say some investors are now betting that this will happen, but Moody’s analysts warned in an opinion piece in the FT that this assumption may prove false.

“In our view, the belief that any company will continue to be bailed out, and in particular that international bondholders will be at an advantage in any future restructuring event, is a false security,” Philipp Lotter and Tristan Cooper, two senior analysts at Moody’s, wrote.

Most of Dubai’s debt is bilateral and syndicated loans with banks, many of which are expected to be more amenable to a restructuring due to deep, long-standing commercial ties to the emirate.

Still, even a successful debt restructure is unlikely to undo the long-term damage done to Dubai’s credibility, Moody’s cautioned.

“Not only is the rebuilding of Dubai’s reputation as a reliable international borrower likely to be a drawn-out process, but the consequences of recent events for the corporate and macro-economic landscape in Dubai are also likely to remain profound,” the credit agency’s analysts wrote.

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