Value of Dubai's assets to grow significantly in 2009

The value of Dubai's assets is expected to grow significantly next year from the current level of $350 billion (Dh1.2 trillion) as the focus remains firmly on prioritising infrastructure growth.

The Dubai Government's quick action and transparency in revealing the exact size and nature of its debt obligation has underlined that the emirate is as well positioned as the region to emerge from the global economic crisis in better shape than most developed nations, analysts said yesterday.

"The disclosure on debt and assets will put an end to speculation," said Sanjay Uppal, Group Chief Financial Officer of Emirates NBD, the Middle East's largest banking group by assets.

"The value of assets revealed will give investors a strong sense of comfort and increased confidence that Dubai's medium- and long-term goals are intact," Uppal told Emirates Business.

The fact that a large portion of the total debt of $80bn is owed by companies affiliated to the government does not faze Uppal. "Emirates airline, Nakheel, Dubal, even Emirates NBD – these are all well-performing corporate entities with strong cash-flows. They will continue to grow and strengthen their fundamentals," he said.

Mohamed Ali Alabbar, Chairman of the Dubai Government's Financial Advisory Council, disclosed that the emirate's total debt overhang – including sovereign obligations and the debt of government-affiliated companies – is $80bn.

It is clear that Dubai's leverage levels are far lower than the world average.

"Concern over Dubai's debt has mounted over the last few months. The key question was whether or not Dubai could pay off its debt in light of a global crisis and broad-based de-leveraging," said Standard Chartered's Mena Economist Mary Nicola in an emailed note.

"While Dubai may be in debt, the federal government has accumulated budget and current account surpluses in excess of 20 per cent of GDP due to increases in oil prices over the last five years. These surpluses provide the government with adequate financial cushion." Alabbar also made it clear that Dubai would not put any of its assets for sale in order to raise funds to meet obligations.

"Giving some firm figures on Dubai's debt has helped to reduce the rumours circulating in the market about the health of Dubai's finances," said Ayman El Saheb, Darahem Financial Brokerage director of operations.

"Saying Dubai will not be selling any assets, whether it is to Abu Dhabi or any other entity, has boosted investor confidence. People are relieved the situation isn't as bad as the speculators made it out to be."

Nasser Al Shaikh, Director-General of the Dubai Department of Finance, said that no amount of liquidity squeeze would stop the emirate from continuing to build infrastructure projects. These include the new airport at Jebel Ali, current and planned expansions of Dubai International airport, the Dubai Metro and a growing number of transportation, power and water projects.

The Dubai Metro's cost of construction is estimated at $4bn. Dubai World Central, the purpose-built city that will include the Al Maktoum International Airport at Jebel Ali, is expected to cost $33bn. Al Maktoum International itself will cost $8bn. The expansions at Dubai International have so far cost $7bn, with more terminals already on the drawing board. Earlier this year, the Roads and Transport Authority announced that it will spend about $15bn over the next few years to expand bus, road and rail networks.

This is only a taste of new assets being created by the Dubai Government.

Analysts believe that the value of the new assets will be far higher than the cost of their construction.

"[Dubai's] debt was accrued mainly in an effort to expand and diversify the economy. The real estate sector has recently slowed down, as buyers de-leverage, after showing signs of overheating earlier this year due to the availability of cheap credit which resulted in increased speculation," Standard Chartered's Nicola said.

"Real estate finance companies are now feeling the pinch of tighter liquidity conditions. The federal government's bold involvement in the real estate finance sector reassures the market of its commitment in stabilising the sector and should help dampen concerns over Dubai's debt profile."

Alabbar has pointed out that Dubai's borrowing has been used to finance the emirate's long-term, risk-free infrastructure development.

"Our debt serves government institutions and state-owned entities that have positive cash flows and that have extremely strong long-term value," Alabbar said at DIFC Week on Monday.

Al Shaikh added: "When it comes to government projects, as per the order of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, no infrastructure project such as airports, Metro and electricity generation units will be stopped."

He said the Dubai Government's focus is on becoming one of the best cities in the world and preparing the short-term as well as long-term infrastructure. The capital needed for Dubai's infrastructure projects is "massive", Al Shaikh said.

Stock markets reacted with unbridled joy as the Dubai Government made its disclosures on debt and asset levels. The Dubai Financial Market opened strongly, gaining about six per cent in early trading before profit-taking pared gains. The index rose for the first time in four days, adding 2.6 per cent to close at 1,862.37. The Abu Dhabi Securities Exchange General Index advanced 1.1 per cent.

Analysts told Bloomberg the market was reacting to Alabbar's comments that Dubai's assets far outstrip its debt and that the emirate will meet its repayment obligations. Emaar rose 3.6 per cent to Dh2.56. Aldar gained 4.7 per cent to Dh5.09 and Sorouh Real Estate climbed 4.4 per cent to Dh3.06.

Raising finance in the future may not be such an Herculean task for the Dubai Government as the global financial focus shifts to the GCC and the Middle East.

The GCC may be in for further short-term pressure on its financial markets but the outlook for its medium and long-term growth is positive, underpinned by strong macroeconomic fundamentals, the Securities and Investment Company (Sico) said in an emailed note.

"The GCC has witnessed ample evidence over the five months that its financial markets and economies are very much a part of the global economy," Sico Chief Executive Anthony Mallis said in the statement.

"However, we believe that although the region may yet experience further pressure, even pain, in the short term, the medium to long-term growth story remains robust. The economic structure of the region is fundamentally different to those of developed and other markets.

"Although oil prices have fallen by more than $100 a barrel over the past four months, with prices hovering at around $45-60 a barrel, we believe that GCC economies have sufficient cushions to sustain economic growth, albeit constrained until the economy picks up.

"With increasing revenues from the non-oil sectors, together with the wealth generated by sovereign investments, the region's economies are set for continued strong but moderating growth," Mallis said.

In a survey of more than 820 institutional investors, Terrapin has found that the United States hedge fund industry is looking eastwards both for investing and for getting allocations.

The survey showed that more than half of international institutional investors, or 53 per cent, are looking to allocate to Middle East-based hedge funds. International fund managers are also actively focused on getting allocations from the region – 83 per cent are targeting family offices and 75 per cent sovereign wealth funds.

The region has a significant pipeline of investments, measured at $2.2 trillion at the end of September 2008.

Sico says $500bn worth of projects are under way and although part of the investment may be postponed or cancelled, Sico views this as positive as it will help cut inflationary stress. (Inputs by Matt Smith)

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