Dubai’s Dry Dock Berthing Maneuver
The UAE beat Gulf peers with a 10 percent advance in the first half as DIFC Investments and the Jebel Ali Trade Zone honored repayment deadlines as the $2.2 billion proposed debt restructuring of Dubai World’s Drydocks affiliate went to final creditor votes and court enforcement. An initial deal was rejected by holdout distressed funds in March amid 95 percent overall approval, and an application to the special resolution tribunal can compel terms with two-thirds consent. Before these events the emirate had successfully placed a dual-tranche $1.2 billion sukuk at separate 5 and 10-year maturities, as revenue from business profit, immigration, tourism and property transactions boosted the fiscal position to a slight deficit. In the first quarter visitor arrivals drive the average hotel room rate to $350 while export value was up 35 percent despite lagging re-exports to sanctioned Iran. Domestic consumption has also stabilized on lower inflation, civil servant wage hikes, and individual debt forgiveness under a national facility established in late 2011. Credit growth remains halting with banks under new prudential limits, but international export agencies have entered to fill the void left by European project lender exit, with France and Belgium supporting transport construction. Saudi Arabia’s exchange, which recently reappeared on the MSCI frontier tables following data-sharing agreement, was just behind at a 7.5 percent gain through July as the mortgage law was finally passed in an attempt to clarify powers and rights and ease the acute housing shortage in the Kingdom. Adoption should aid double-digit private credit expansion. Strong oil and non-oil showings back 5 percent GDP growth and the political transition to the next royal generation may be in train with deaths and ill health in the elder ranks. Economic and foreign policy shifts have fallen short of Arab Spring urging as the government tries to bolster smaller neighbors Bahrain and Oman.
The former returned to the bond market in June after a six-month hiatus with an oversubscribed $1.5 billion issue half taken by Mideast buyers. Public debt has quadrupled to 35 percent of GDP the past three years as the island’s rulers confront majority Shi’ite Muslim demands, and the offshore financial sector stagnates given meager oil endowment. Budget deficits are now the norm, unlike in Oman which runs a big surplus but has imposed personal loan curbs to brake runaway borrowing. The MENA contingent has outperformed the Gulf with Jordan a quiet triumph outside Egypt, ahead 20 percent on the MSCI Index. Election law reform is stalemated and Syria spillover looms but officials have asked the IMF for a $1.5 billion precautionary facility to relieve external debt and fiscal crunches. Energy subsidies have been cut and public investments postponed in advance of negotiations, although higher taxes will fall on listed banks and miners which have anchored the rally.
