Dubai: Dubai World recently repaid $890 million (Dh3.269 billion) outstanding balance on a $1.2 billion loan it obtained from international banks last year to acquire a 9.4 per cent stake in MGM Mirage by Infinity World, a subsidiary of Dubai World.
The loan repayment by Dubai World is the third in a series by Dubai Government owned entities in the last few weeks.
"While refinancing had been offered, Dubai World determined the cost of capital was not competitive and instead elected to repay the outstanding amount under the loan of $890 million from its operating reserves on December 11, 2008," Dubai World said in a statement yesterday.
Investment bankers and analysts said yesterday that the debt repayments on or ahead of their repayment schedules by these government owned entities point to their financial strength and should put to rest the speculation about Dubai's ability to meet its debt obligations.
"DP World has a strong cashflow position is and a transparent balance sheets, which could serve as a model for other Dubai entities wishing a tap debt/sukuk markets, including Dubai World, where the lack of transparency remains a significant issue," said Mohieddine Kronfol, Managing Director, Asset Management of Algebra Capital.
Bankers said yesterday that while a number of government owned companies still have the ability to meet their debt obligations from their internal accruals, some of them would be resorting to debt recycling.
"There is no evidence to suggest government entities have started selling assets to repay loans, but loan rollovers are possible as government entities are raising funds as suggested by the Citi group on Sunday," said a DIFC based investment banker.
Citi's chairman, Sir Win Bischoff, said on Sunday that the banking group recently arranged more than $8 billion in finance for Dubai's government-owned entities.
"The recent fund raising by some of the government entities matches their debt repayment schedules. Clearly, some of these companies are rolling over their debt," said Kronfol.
Dubai World, Dubai Holding Commercial Operations Group (DHOG) and DIFC Investments together have repaid about $4 billion of debt obligations in recent weeks.
While DHOG recently announced it has repaid its first publicly traded Dh1 billion Eurobonds from its internal cash flows, the company repaid Dh1.4 billion of amortising and maturing bank loans.
Earlier this month DIFC Investments, the investment arm of the Dubai International Financial Centre (DIFC), repaid its $500 million syndicated loan facility due to mature on December 5.
Bankers said yesterday that Dubai firms' ability to raise money from the international market despite the severe credit crunch points to the fundamental strength of these companies and the confidence the market has in the sovereign support they enjoy.
According to the Dubai Government's Advisory Council's estimates the Dubai government's sov-ereign debt obligations stand at $10 billion (Dh37 billion), while its sovereign assets, excluding key infrastructure installations are estimated at more than $90 billion (Dh330 billion).
The total debt obligations of government-affiliated companies are estimated at Dh256 billion, their assets are valued at Dh950 billion.