Dubai World deal provides haven

Dubai: Dubai World's $25 billion (Dh91.95 billion) debt restructuring deal has boosted the emirate's position as a safe haven in a politically turbulent region.

Dubai related bonds have been rallying at an average of two points in the last two days. In the last five days, Dubai credit default swaps have fallen by more than 35 basis points. Even the equity markets have been positive. There is a flight to stability happening in the region. With regions around the UAE facing unrest, and Dubai having attractive yields, this news is an additional boost for the region, said Chandru Bhatia, junior portfolio manager of Rasmala Investments, Dubai.

He added the deal would allow the company to refocus on its core competency. "If the company would not have received 100 per cent creditors' approval, then it would have had to liquidate some of its positions to pay creditors which would have been bad for the company, equity price, and bad for Dubai's name in general."

"This will be seen very positively for Dubai's economy as it enhances faith in Dubai's capability to handle the crisis," Bhatia said. "This increases confidence in Dubai. We can expect investments that had left the region after the November 25, 2009, restructuring announcement to slowly start flowing back into the region. Investors sitting on cash will also start reinvesting in the region."

An analyst at Shuaa said, "It was very widely expected so it was not a big surprised to everyone. It was always going to be signed, and we were aware of it in the days running up to it. It does draw a line under the agreement and is good for confidence."

Farouk Sousa, chief economist of Citigroup, said, "This announcement has been anticipated and there were talks about it being finalised in the last couple of weeks. Generally speaking, investor confidence has been on the rise in Dubai and it is increasingly being seen as a safe haven for investment."

Dubai World and the Government of Dubai worked closely in finalising the deal that gives the emirate's biggest conglomerate up to eight years to repay the debts. "The announcement has been largely expected since September, but now it's been finalised there is more confidence that the restructuring plans of other entities will happen. There are other similar structured entities with similar creditors," Joe Kawkabani, managing director of equities asset management, Algebra Capital told Gulf News.

"In terms of investor confidence, this year has been slightly different due to the political events that have happened in the region. However we can see that different sectors in the economy moving along and doing well. The system is still absorbing the overhang of debts and it's not out of the worst but moving out of it." The agreement will help Nakheel — one of the largest developers in Dubai, to focus on its projects.

A Nakheel spokesperson said: "Nakheel is pleased to announce important steps towards the finalisation of the Nakheel Restructuring. Nakheel will shortly commence issuing restructuring agreements to eligible trade creditors who have already signed restructuring undertakings.

The only concern now is that in 2011 and 2012 Dubai has significant redemptions. In 2011 there is a loan from the Investment Corporation of Dubai for $4 billion which includes a government guarantee. In 2012, the Dubai Government's bond will mature.

The repayments are due from three large quasi sovereign entities namely the Dubai Holding COG (February 2012, $500 million), DIFC Investments (June 2012, $1.25 billion) and Jebel Ali Free Zone (November 2012, Dh7.5 billion).