Dubai firms highlight strength amid debt questions

AP News
Posted: Dec 10, 2009 10:14 AM

Dubai business leaders voiced support Thursday for some of the emirate's stronger state-linked companies, as the finance chief dismissed media coverage of the sheikdom's debt woes as "blind panic" and the city-state's main stock market snapped out of a three-day downward spiral.

Government-owned Emirates airline, the region's biggest carrier, said its finances were secure and announced it had lined up more than $1 billion in financing for six more Airbus A380 "superjumbo" planes.

Meanwhile, the head of the Dubai Electricity & Water Authority said the utility provider has "unequivocal confirmation" of continued support from creditors after Moody's Investors Service cut its credit rating to junk status earlier in the week.

"Our lenders are aware of the authority's financial strength, past performance record and the stability of our revenue streams," DEWA Chief Executive and Managing Director Saeed Mohammed al-Tayer said in a statement issued by the Dubai ruler's media office. The utility's debt, he added, is guaranteed by the Dubai government.

The question of a state guarantee for corporate debt has taken on increased weight in recent days.

Until two weeks ago, lenders had assumed Dubai or UAE federal authorities in its oil-rich neighbor Abu Dhabi would stand behind more than $80 billion in government-linked debt.

Then Dubai called for a delay in paying back some of the money, and announced it was trying to restructure $26 billion in loans owed by its Dubai World conglomerate.

Officials in Dubai, one of seven sheikdoms making up the United Arab Emirates, have since made clear the government will not be held responsible for much of the debt racked up by the companies it created and used to expand the city-state's international clout.

Investors fear the problem could run deeper and spread to other state-owned companies.

On Wednesday, Emaar Properties, the publicly traded developer building the world's tallest skyscraper, dropped a planned merger with property companies owned by Dubai Holding because it said the deal was not economically viable.

Bankers say the decision raises further questions about the health of Dubai Holding, an investment company controlled by the city-state's ruler. Analysts at Barclays Capital warned earlier this week that the firm could be "next in line" with credit problems.

Investors nonetheless saw the abandoned merger as good news for Emaar, driving the developer's beaten-down shares nearly 15 percent higher in the week's last trading session Thursday.

"The fact that Emaar would no more be saddled with three indebted Dubai government entities about which there was little detail was ... taken positively by the market," said Julian Bruce, director of institutional equity sales at EFG Hermes. "It stays as a standalone entity."

Emaar's rally helped drive the Dubai Financial Market index up 7 percent following three days of heavy losses.

Dubai's top finance official, Abdul Rahman al-Saleh, pressed ahead Thursday with government efforts to minimize the crisis.

During a speech at the Harvard-affiliated Dubai School of Government, the finance department director-general said international media coverage of Dubai's debt problems was inaccurate and an "unnecessary blind panic" stemming from a misunderstanding of Dubai, according to a text of his remarks.

"Let me admit, in Dubai we are not good in publicizing what (we) are doing as much as we are good in doing it," he said, adding that if "past precedent is any guide, then Dubai will be a winner from the current financial crisis."

Al-Saleh's comments came as Emirates airline said it plans to receive its sixth Airbus A380 "superjumbo" next week and another before year's end after lining up $1.13 billion. The funding for a total of six planes came from Citigroup Inc. and Doric Asset Finance.

"We have never encountered difficulties in obtaining finance for our aircraft acquisition program, with both international and regional banks comfortable with our financial stability," Emirates President Tim Clark said in a statement.

The carrier, he added, "has always honored its financial commitments" and is pushing ahead with its ambitious growth plans.

Emirates operates five A380s now and has 53 on order, by far the most of any airline. The fast-growing carrier also operates more of Chicago-based Boeing Co.'s long-range 777 model than any other airline.

The airline has reported consistent profits for years, and is seen as more financially healthy than some of Dubai's other state-sponsored enterprises.

Risks remain, however. Clark told The Associated Press in an e-mail earlier this week that, like Dubai World's, none of Emirates' debts is guaranteed by the government of Dubai.