DUBAI: Oil-rich Abu Dhabi and the UAE central bank agreed yesterday to roll over $20bn in loans to neighbouring debt-laden Dubai after it was hit by the 2009 global financial crisis. The government of Abu Dhabi agreed to roll over a loan of $10bn for a renewable five years, the state news agency WAM reported.
The Abu Dhabi-based central bank of the UAE federation at the same time renewed subscription to Dubai bonds worth $10bn for five years, it said.
The loans, that were due this year, will have an interest rate of one percent, WAM said.
“These agreements are made within the context of its parties’ continued efforts to boost the competitiveness of the UAE economy on both regional and international levels, and to reflect the upturns Dubai’s domestic economy has witnessed over the past few years,” WAM said.
“This is positive for Dubai, but it was largely expected,” said Monica Malik, chief economist at EFG-Hermes investment bank in Dubai. “It is very positive for Dubai in terms of meeting its debt obligations for 2014, which was a heavy year, mainly due to the maturing debt owed to the central bank and Abu Dhabi,” she said.
Dubai had $36.5bn of debt maturing this year, including the debt just rolled over by Abu Dhabi and the central bank, according to figures published last year.
Malik said the reduction in the loans’ interest rate to 1 percent, from 4 percent earlier, was “particularly notable”, saying it will be “supportive of Dubai refocusing on investment”. Dubai sent jitters through global financial markets in 2009 when it signalled problems in servicing mountains of debt owed by government-related entities. Dubai World group was the first to expose the emirate’s debt problem, saying it was facing difficulty in repaying debt amounting to $26bn. Other GREs followed suit.
The once rapidly booming economy of Dubai was hit hard by the world financial crisis, which turned off the tap on easily available foreign finance, leaving many of its companies high and dry and with a heavy debt burden.
Dubai and its government-related firms piled up some $113bn in debt. But with the help of deep-pocketed Abu Dhabi, and following long talks with lenders, Dubai managed to restructure most of its debt.
The economy of the glitzy emirate, home to the world’s tallest tower and large man-made islands, has since bounced back strongly, banking on its core sectors of trade, tourism and transport.AFP
