Dubai’s debt load to worsen, no pre-pandemic restoration till 2023: S&P

DUBAI, United Arab Emirates — Rankings company S&P forecasts an 11% contraction for the Dubai financial system in 2020, with an already excessive debt load set to extend as a few of the emirate’s very important sectors wrestle to rebound from the impression of the coronavirus pandemic.  

“S&P International Rankings expects Dubai’s financial system will contract sharply by round 11% in 2020, owing partially to its focus in journey and tourism, two of the industries most affected by COVID-19,” the company wrote in a consumer be aware final week. It sees the financial system “solely recovering to 2019 ranges by 2023.” 

Tourism in recent times has comprised round 12% of the emirate’s annual GDP, which is way extra diversified than that of its closely oil-reliant Gulf neighbors. Nonetheless, Dubai — often called a commerce and logistics hub in addition to a significant procuring and tourism attraction within the Center East — has suffered because the pandemic has decimated air journey and the hospitality business, in addition to different sectors like development and actual property.  

Oil makes up solely about 1% of Dubai’s GDP, however the far greater reliance on hydrocarbons by its neighbors signifies that the oil value plunge has slashed regional companions’ capability for funding, tourism and commerce.  

“We estimate, primarily based on publicly out there data, that Dubai’s  gross basic authorities debt will attain about 77% of GDP in 2020,” which quantities to 290 billion AED ($80 billion), S&P stated. 

“Nevertheless, a broader evaluation of the general public sector, together with government-related entity (GRE) debt, signifies a debt burden nearer to 148% of GDP,” S&P wrote. 

London consultancy Capital Economics estimates that within the subsequent three years, some $21 billion of Dubai’s GRE debt will come due — which it calculates as 19.4% of GDP — and one other $30 billion in 2023. 

Dubai’s authorities, nonetheless, launched its personal evaluation in a uncommon debt issuance in September to disclose a debt determine considerably decrease: 123.5 billion AED as of end-June, or roughly 28% of GDP.   

The query of Dubai’s debt stage is a tough one, and comes right down to how the debt is calculated: Dubai’s authorities doesn’t embody debt owed by government-related entities, or GREs, whereas scores businesses like S&P and Moody’s try to take action primarily based on out there data on native borrowing, since GRE debt is issued by personal and unrated our bodies.

“Score businesses are in a clumsy place with regards to Dubai,” Nasser al-Shaikh, a former head of Dubai’s finance division, advised CNBC. Al-Shaikh rejects the businesses’ numbers. “With it being unrated, their estimates have been merely unsuitable as proven in disclosures made by Dubai when it not too long ago raised $2 billion — which in fact was oversubscribed a number of occasions.”

Dubai returned to public debt markets in September for the primary time in six years, efficiently issuing $2 billion in debt within the type of a $1 billion Islamic sukuk and a $1 billion authorities bond. The worth of orders exceeded $10 billion. 

“Sovereign debt is just that which (the Dubai authorities) is legally accountable for debt being prolonged to the Authorities, its public establishments and business debt that carries its assure,” Al-Shaikh stated in response to S&P’s report. “GREs are business entities that borrow on business phrases and it is utterly as much as the Sovereign to determine if it’ll help them financially or not.” To this point, he famous, the one public sovereign dedication from Dubai has been to help its flagship service Emirates Airline with a lifeline of seven.three billion AED. 

In that means, the federal government goals to demarcate what debt it’s answerable for and what it is not. Rankings businesses, in contrast, try and cowl all attainable liabilities.

The emirate suffered a debt disaster in 2009, triggered when main GREs could not repay their money owed, main Dubai to depend on help from UAE capital Abu Dhabi within the type of billions of {dollars} in loans and bonds which have since been constantly rolled over as they turn into due. However the scores company does not predict an identical state of affairs this 12 months.

“Though we don’t anticipate such a necessity, within the occasion of economic misery, we count on Dubai would obtain additional monetary help from the United Arab Emirates, with Abu Dhabi’s backing,” S&P wrote.

The Dubai Financial Division didn’t reply to a request for remark.