The UAE’s Towering Debt Tip-Over
The UAE triumphed over MENA stock markets with a 45 percent gain through May after a flurry of big debt restructurings, property turnaround, and repayment of bank funds borrowed after the 2008 crisis. The Amlak arm of Islamic developer Emaar proposed a 15-year loan extension and 30 percent reduction to its creditor committee including Standard Chartered alongside Emirates NBD and other local units. In the biggest deal since Dubai World, Dubai Group also owned by the royal family set final terms for $6 billion outstanding after several lenders initially balked at a dozen year wait for reimbursement. Under the agreement they will get almost 20 cents to the dollar upfront and after the announcement CDS spreads dipped to 185 basis points. The breakthrough overshadowed backlash in the longer-running DW saga with calls for faster asset disposal to meet the 2015 $4.5 billion deadline. Hotels and casinos are on the block but the government prefers patience to avoid large discounts. The tribunal hearing the conglomerate’s cases intends to handle the remaining load by next year, as Abu Dhabi separately lunched its own legal and regulatory scaffolding for a free zone financial hub. In the tiny Sharjah emirate Dana Gas also completed the final arrangements for rescheduling its $900 million sukuk after Egypt and Iraq did not honor contracts. Banks have been able to issue bonds at oversubscribed 3 percent-range yields as credit growth again picks up marginally after the central bank recently eased mortgage exposure caps. Leading Gulf exchange Saudi Arabia rose 5 percent as the money supply increases at a double-digit pace and the new US-trained capital markets supervisor reportedly prepares direct external opening that could merit MSCI core universe standing. Oil output is down to 9 million barrels/day with the price around $100 as Fitch upheld its AA- minus sovereign rating on an estimated 8 percent of GDP budget surplus and $650 billion in foreign reserves. Food and rent-driven inflation improved to 4 percent as the King embarked on a massive home-building scheme and inaugurated the $10 billion Riyadh financial district which will host a cross-section of domestic and foreign tenants despite steep rents.
Qatar registered a similar advance as it too awaits index graduation, with public sector credit up 30 percent to cover massive hydrocarbon, World Cup, and infrastructure projects. After 6 percent growth last year the budget surplus has evaporated with cost overruns such as with the new $15 billion Doha airport. Rail and subway networks will provide over 100,000 jobs to quell youth discontent, as the sovereign wealth fund takes stakes in a host of industrial and emerging market banks and the government likewise wields influence abroad as the largest bilateral backers of Egypt’s Muslim Brotherhood regime and Syria’s rebels. At $8 billion since President Mubarak was ousted two years ago, the Cairo commitment is roughly double the mooted IMF facility again postponed until parliamentary elections break ground.
