Dubai ‘Not Worried’ About Maturing Debt, Ruler Says

By Riad Hamade and Arif Sharif

Sept. 9 (Bloomberg) -- Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum said he is “not worried” about the emirate’s ability to repay at least $4.52 billion of debt this year, boosting property developer Nakheel’s bonds to a year-high.

“I assure you we are alright, the U.A.E. is alright, and we are not worried,” Sheikh Mohammed told reporters late yesterday at his Zabeel palace in Dubai, when asked whether the emirate would be able to repay the loans. Sheikh Mohammed is also the prime minister of the United Arab Emirates, a union of seven states of which Dubai is the second-biggest after Abu Dhabi.

The Dubai government must repay a $1 billion Islamic bond maturing in November, while state-owned real-estate developer Nakheel PJSC has a $3.52 billion Islamic bond falling due in December. The emirate borrowed $80 billion to finance its transformation into an international logistics, tourism and finance hub, and the seizure of global credit markets sparked concern about its ability to repay the loans.

Nakheel’s 3.1725 percent bond surged 9.3 percent to 102.5 cents on a dollar at 12:34 p.m. in Dubai after the comments, according to prices provided by National Bank of Abu Dhabi PJSC to Bloomberg. The bond, which slumped to 63.5 cents on a dollar in February, is headed for its highest close since Sept. 2008.

Moving markets

“This is moving markets,” Abdul Kadir Hussain, chief executive officer of Mashreq Capital DIFC Ltd., said in a phone interview from Dubai today. “It gives a boost to confidence that the market was looking for, and this is obviously coming directly from the source, so that provides a lot of comfort.”

Dubai set up a $20 billion fund earlier this year to help state-related companies struggling to raise money amid the credit crisis. Home prices in Dubai have tumbled by about 50 percent from their peak and may drop another 20 percent this year, Deutsche Bank AG said in a report in June.

Dubai established the fund after the global financial turmoil hurt its key property, finance and tourism industries and hindered companies’ access to credit. The first $10 billion for the fund was raised by selling bonds to the U.A.E.’s Abu Dhabi-based central bank in February.

The emirate, which is building the world’s tallest tower and the biggest man-made islands in the shape of palm trees, would study the viability of projects more closely in the future after the credit crunch led to an economic slump in the Persian Gulf business hub, Sheikh Mohammed said.

More careful

“We’ll be more careful now,” he said. “The crisis came for everyone, not just Dubai. People had to fight.”

The sheikhdom shelved some of its most ambitious plans including a set of dancing towers, made up of 80 stories of rotating floors, and a Formula One theme park. Emaar Properties, the U.A.E.’s biggest developer, is in talks to merge with three developers owned by state-controlled Dubai Holding LLC.

“The strategy is nearly the same,” Sheikh Mohammed said. “The U.A.E. is strong, it is like a plane facing headwinds. Now the headwinds are slowing down, so the plane will reach its destination more quickly.”

To contact the reporter on this story: Riad Hamade in Dubai at rhamade@bloomberg.netArif Sharif in Dubai at asharif2@bloomberg.net