Dubai: Finding appropriate funding options and managing the debts of Dubai government and government-related entities (GREs) will not only be key to the success of Expo 2020 but will result in longer term economic benefits from the event, Monica Malik, chief economist of EFG Hermes said.
Private-sector credit growth in the UAE is expected to accelerate between 2014 and 2020. Between 2014 and 2020 both consumption and investment demand will drive the credit growth with larger credit demand coming from the corporate sector.
With already high levels of credit exposures many GREs have, and new credit exposure limits set for these entities by the central bank, analysts say many GREs will have to look for alternative funding options outside of the banking system.
“Alongside higher credit growth, other forms of funding will remain important, particularly bond and sukuk issuances. We expect stronger GREs to lead the debt issuance,” Malik said.
Positive debt management will be important for many GREs to tap the markets again.
Dubai’s debt levels are estimated at 102 per cent of GDP (IMF estimates)and servicing requirements remain high.
“We believe many GREs will require second round of refinancing from 2015 to 2016 when much of the restructured debt from 2009 matures,” Malik said.
The IMF estimates that about $60 billion GRE debt will fall due between 2013 and 2017.
With global interest rates set to rise as the US scales back its asset purchase programme, finance is going to be expensive for companies with lower credit profiles.
“In this context it is important for GREs to pursue asset sales to reduce debt levels as opposed to restructuring which only extends and/or at best reduces the borrowing costs,” Malik said.
