According to an investigation by the agency,Reuters“Al-Alamiah News, that the Emirate of Dubai is in a state of great drowning in debt, and suffers a government deficit in finding any solutions to the crisis.
This situation of deficit and indebtedness in Dubai comes a year after the Corona pandemic, which has burdened the economy in the emirate. Which raised several question marks about Dubai’s ability to fulfill its financial obligations.
At present, two companies have emerged with ties to the Dubai government and a member of the ruling family.
While the two companies confirmed that they would not pay millions of dollars in debts.
This is a rare move of its kind in Dubai, which is a business center in the Middle East region, and the complexity of its economic problems increases.
According to a document sent to a number of investors last December, Dubai Holding informed the creditors. That it will not be able to pay the dues for a loan amounting to $ 1.2 billion from Dubai Holding Investment Group, a subsidiary of it, and that it is ready to proceed with its liquidation, which will double Dubai’s debts.
The second company, the emirate-owned real estate development company Limitless, told creditors last March that it was unable to fulfill the payments. About a loan of about $ 1.2 billion, and the company has been seeking to restructure the debt since then.
Dubai Holding, which has assets and properties in the real estate and hospitality sectors worth $ 35 billion, declined to comment on the debts of its subsidiary. And plans to pay dues for other units.
According to a spokeswoman for Limitless, discussions of restructuring with creditors are still ongoing, but she did not mention any further comment.
Among the company’s creditors are banks in Dubai such as Emirates NBD, Mashreq Bank and Dubai Islamic Bank.
According to investors, the steps taken by Dubai Holding and Limitless have weakened the assumption that the emirate’s support is a given.
This prompted some creditors to re-evaluate their willingness to be exposed to the emirate’s debt.
Three banking sources said that in light of the arrival deadlines of tens of billions of dollars over the next few years. Some creditors sold off their debts or set aside provisions in anticipation of future losses.
Price lists show that the price of Limitless debt has fallen sharply in the secondary market.
Great financial pressure
The measures left by the Corona pandemic have negatively affected Dubai’s economy, which relies in essence on trade and tourism, as well as lower oil prices.
Including large sums in support of government-related entities will add pressure to public funds.
According to Cedric Barre, an analyst at Fitch Ratings, “recent defaults have been brought to light.” On longstanding fears of rising public and private sector debt.
This is in the midst of low growth and severe weakness in the real estate market, which is characterized by a chronic increase in supply over demand.
“Adopting a policy based on reducing subsidies is in itself positive for the government’s finances and creditworthiness.”
Despite this, transparency is limited in the financial statements of government-affiliated entities.
The precarious economic environment also raised the risk that some entities would need financial support, which puts pressure on government finances.
For its part, the Dubai government provided an explanation of its approach regarding government-related entities, in the special circular, regarding the sale of Dubai’s sovereign debt in the previous year.
The emirate explained that if such companies were unable to fulfill their obligations. The government may “decide on its sole discretion to provide such support at its discretion”.
However, two bankers said that some investors operate on the basis that there is a hidden government guarantee, which is reinforced by Dubai’s support for the Emirates Group.
It is the airline owned by the emirate, during the Corona pandemic crisis.
The emirate pumped nearly $ 2 billion into the company through capital last year.
According to a company spokeswoman, she said, “None of its debts are subject to government or government investment guarantees. It is the emirate’s sovereign wealth fund.
Some of the debts on Limitless Real Estate Development were traded at 20 cents to the dollar last December, down from 30 cents.
Central bank data shows that bank allocations to bad and doubtful debts in the UAE amounted to about $ 42 billion as of November of last year. Up from $ 36 billion at the end of 2019.
For its part, the Institute of International Finance estimates that the proportion of bad loans in Dubai is expected to reach more than 7.6 percent of total loans in the last year 2020.
In this way, it is 1.1 percent higher than a year ago, when it was 6.5 percent.
This, in turn, makes it difficult to get a complete picture of the financial situation in Dubai.
The Capital Economics in London said that nearly $ 38 billion in debt from entities linked to the Dubai government would be repayable. Before the end of the year 2024, along with much of it in the year 2023.
Many observers attribute these debts to the financial crisis that lasted between the years 2008 and 2009, when the Emirate of Abu Dhabi intervened. To help support its Dubai-controlled companies.
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