Fears ease over Dubai default on debt

Fears Dubai will default on its debt have eased, according to a report today. Sovereign and corporate bonds in the emirate have rallied in recent months, the Financial Times reported. For example state-owned client Nakheel’s $3.5bn Islamic bond has risen from a low of 63.5 cents in December to 90 cents in August.

Economists say improvements in Dubai’s debt situation are primarily down to the likelihood that Nakheel will now be able to repay its bond. “There has been a global tightening of yields, not just in Dubai,” Daniel Broby, chief investment officer at Silk Invest, an asset manager, told the FT. “But we’re hearing a lot more about support for companies like Nakheel, which is positive.”

The second half of the Dubai government’s $20bn bond programme, which aims to help developers repay their debts, is expected to be issued soon.

Additional financing may also help developers after the UAE Federal National Council passed a law that would extend a federal, Abu Dhabi-backed guarantee to all bonds issued by UAE banks. A senior investment banker in Dubai said the emirate could instruct banks it controls to use capital raised through federally guaranteed bonds to help repay debts. However, the guarantee has yet to be ratified, and the details of how it would work remain unclear.