Exclusive: Abu Dhabi set to extend bailout loan to Dubai, sources say

ABU DHABI / DUBAI, (Reuters) – Abu Dhabi is set to roll over $ 20 billion in debt for the second time, maturing next month, which it extended to Dubai during its financial crisis ten years ago, have said three sources familiar with the matter.

Men walk past buildings at the Dubai International Financial Center in Dubai, May 5, 2013. REUTERS / Ahmed Jadallah

Dubai got help from the rich oil capital of the United Arab Emirates in 2009 after the global credit crunch caused its real estate market to collapse, threatening to force some state-linked companies to default on billions. dollars in debt.

In March 2014, the government of Abu Dhabi and the Federal Central Bank of the United Arab Emirates agreed to refinance the debt for five years at an annual interest rate of 1%.

The rollover included a five-year $ 10 billion loan that the Abu Dhabi government offered to Dubai through two state-owned banks and $ 10 billion in five-year bonds that Dubai issued to the bank. central.

“It’s the same as last time, the debt will probably be extended again,” said a source familiar with the matter, without elaborating.

Two other sources familiar with the matter said the debt would be extended. They declined to be named because the decision is not yet public.

Dubai’s finance department declined to comment. A spokeswoman for the UAE central bank said she made no comment. The Abu Dhabi government’s communications department also declined to comment.

Analysts said they expected the debt to be extended. The rollover comes amid prolonged weakness in the Dubai property market, which, along with an outflow of funds to Saudi Arabia, caused stock markets to collapse last year.

The pressures on Dubai are not as severe as those it faced a decade ago, but as the region’s main financial, commercial and tourism hub, it has been hit by an economic downturn in the Gulf countries caused by low oil prices.

“Abu Dhabi will not risk any tension in asking Dubai to pay. It’s a much more sensitive period now than in 2009, ”said a senior banker, who added that the debt will be extended to help Dubai grow its economy.

Dubai’s economy has been hit by the UAE’s decision to impose a trade and transport boycott against Qatar since mid-2017, as well as Saudi Arabia and other Arab countries. The UAE is also complying with the renewal of US sanctions against Iran, for which Dubai has always been a transshipment hub.

“We expect the rollover to be extended,” said Thaddeus Best, analyst at sovereign risk group, Moody’s. “The question is what will be the terms of the extension.

“If the interest rate were to be adjusted to reflect prevailing US Treasury rates, it could result in an increase in debt service charges of approximately $ 300 million. All other things being equal, this would translate into a larger budget deficit, ”Best said.

The 2014 refinancing reduced the cost of financing to 1%, down from 4% originally.

Reporting by Stanley Carvalho and Davide Barbuscia; edited by Ghaida Ghantous, Larry King

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