Dubai skyline, showing Burj Khalifa, currently the world's tallest man-made structure: A prospectus that accompanied Dubai’s planned offering of bonds and Islamic securities on Monday showed the government’s outstanding direct debt stood at AED123.5 billion ($33.6bn) as of June 30. That’s about 28 percent of last year’s gross domestic product, according to the document seen by Bloomberg. Image Credit: Gulf News Archive

The Government of Dubai, represented by the Department of Finance (DOF), announced Thursday the successful completion of an issuance process consisting of 10-year Islamic Sukuk of one billion US dollars at a profit rate of 2.763% and thirty-year government bonds of one billion US dollars at an interest of 3.90%.

"We are satisfied with the success of Dubai in this issuance. DOF was able to obtain the lowest interest rate for thirty-year bonds and the lowest profit for ten-year Sukuk in Dubai government history," confirmed Abdulrahman Saleh Al Saleh, Director General of DOF.

The issue was 5x oversubscribed, with the order book value exceeding $10 billion.

Investory confidence

"This issuance was in line with the determinants of the financial policy pursued by the emirate, which was based on financial sustainability and continued spending on vital infrastructure projects, while responding to the requirements of the current stage set in the budget priorities circular, issued at the beginning of the second quarter of this year. This is a strong indicator of the efficiency of government financial solvency and the continued high investor confidence in the financial landscape of the Dubai government at the global level," Al Saleh added.

Rashed Ali bin Obood, Head of Investors Affairs at DOF said: "The value of the order book exceeded $10 billion, five times more than the target value of the issuance. The strength of the order book as well as the diversity of the investor base reflect the strong confidence of international community in the resilience of the emirate's economy and the reaffirmation of superiority of Dubai’s credit globally."

"Global investors made up 84 per cent of the total investors in the long-term bond segment (30 years). The continuous positive interaction of the Dubai government with the global investment markets in the past years has always played an important role in the success of previous bonds and sukuk issuances, which is also reflected in this issuance by lowering the rates," Bin Obood concluded.

The Government of Dubai mandated Dubai Islamic Bank, Emirates NBD, First Abu Dhabi Bank, HSBC, and Standard Chartered Bank to manage the issuance process.

Earlier report

Dubai made a rare foray into public bond markets, revealing along the way that its debt burden is now a lot smaller than estimated by analysts only months ago.

A prospectus that accompanied Dubai's planned offering of bonds and Islamic securities on Monday showed the government's outstanding direct debt stood at 123.5 billion dirhams ($33.6 billion) as of June 30.

That's about 28% of last year's gross domestic product, according to the document seen by Bloomberg.

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In a report last September, S&P Global Ratings put the government's direct debt at $65 billion, equal to 56% of 2018 GDP. Bank of America Corp. in May said it reached an estimated 65.6% of GDP in the first quarter of this year, from 47% in 2011, and warned it was "likely to increase further."

A dearth of timely statistics has made it hard to get an accurate read on the state of Dubai's economy and finances, and the emirate's absence from markets hasn't helped.

Unlike Gulf neighbours that increasingly opted to issue public debt in recent years, Dubai has mostly looked to raise capital by means of private placements and bilateral loans.

It last sold a sukuk in 2014.

Dubai's Department of Finance didn't immediately respond to a request for comment.

Dubai Metro
The Dubai Metro: Dubai has mostly looked to raise capital by means of private placements and bilateral loans.

The disclosure in the bond prospectus fell short of providing the full picture on the emirate's liabilities, saying "there is no official information on either the aggregate amount or maturity profile of the indebtedness" of Dubai's government-related entities, or GREs.

S&P analysts last year estimated GRE debt at about $59 billion, equal to 52% of 2018 GDP. Moody's Investors Service has said that Dubai's GRE debt is concentrated in aviation and real estate, according to an April report.

Dubai Expo 2020 delayed

As Dubai detailed its financial information, it also offered a glimpse into how government finances adjusted to the disruptions caused by the coronavirus.

The economy is heavily dependent on tourism, trade and retail, sectors hardest hit by the emergency. The global pandemic forced Dubai to delay this year's World Expo.

The government revised this year's budget revenue to 44.2 billion dirhams, according to the prospectus, down more than 30% from what it originally envisaged.

It also decreased its projected expenditure to 56.2 billion dirhams for 2020, leaving a deficit of 11.9 billion dirhams.

Revenue from value-added tax was also revised lower to 9.4 billion dirhams from 11.7 billion initially budgeted for 2020. The levy generated 11.4 billion dirhams in revenue last year.

Dubai owes a total of $20 billion to the Abu Dhabi government and the UAE central bank, an amount it used to support strategic entities that required financial assistance.

The Dubai government's debt also includes more recent borrowing to fund the expansion of airports as well as infrastructure needed to host the city's planned Expo.

It put Dh7.3 billion into Dubai's flagship airline, Emirates, since the coronavirus pandemic brought global air travel to a near halt in March.