Dubai seeks debt delay for flagship firms

“The standstill requests comes as a surprise, especially after additional finance from Abu Dhabi has been raised.”

Dubai's economy was hit hard as the global credit crunch over the past year ended a six-year boom in the region and sent the emirate's once-flourishing property sector into decline.

In a surprise move last weekend, the ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, reshuffled the board of the Investment Corporation of Dubai, which manages his wealth, and changed the chief of the Dubai International Financial Center.

The reshuffle, which removed boom-era leaders from key positions, was widely seen as a shift towards more conservative stewardship of Dubai's resources.

Dubai's announcement on Wednesday shook the confidence of investors in government debt elsewhere in the region; credit default swaps for Abu Dhabi, Saudi Arabia and Qatar also rose, by more modest amounts.

Investor confidence in Saudi Arabia has been hit this year by up to US$22 billion of debt restructurings at the country's Saad and Algosaibi groups.

In another move on Wednesday which the government said was not connected to the Dubai World restructuring, Dubai raised a further US$5 billion as part of a US$20 billion bond program launched this year. The US$5 billion was half of what it had previously said it would raise.

The US$5 billion tranche, with a maturity of five years and paying 4 percent interest, was placed with two Abu Dhabi-controlled banks, National Bank of Abu Dhabi and Al Hilal Bank, officials said.

The first US$10 billion tranche in the program was taken up by the United Arab Emirates central bank earlier this year as Dubai sought to raise funds to support state-linked companies.

Economist David Butter at the Economist Intelligence Unit said the bond was an elegant way for Dubai to avoid going back to the central bank, owing to the difficulty of attracting interest from international banks.

“Dubai will be able to state that it has raised what it needs from the market, without any suggestion of an Abu Dhabi bailout,” he said.

Dubai has said previously that proceeds from its bond scheme will underpin companies such as Nakheel, as part of its drive to build tourism as an alternative to dwindling oil reserves.

But few details have been disclosed about what Dubai has done with the initial US$10 billion and how it plans to use the latest US$5 billion.

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