The 7.5 billion dirhams ($2.04 billion) JAFZA sukuk along with the $1.25 billion floating rate note from DIFC Investments, a unit of Dubai International Financial Centre, are considered among Dubai government-linked obligations in 2012 with the greatest chance of encountering repayment issues, Tommy Trask, director, corporate ratings, at S&P told reporters.
While the base assumption continued to be that both maturities would be met on time and in line with their original terms, Trask said, the ability for the Dubai authorities to step in with assistance for JAFZA was more complex and less likely.
“The difference between the two is there’s a higher likelihood of government intervention on DIFC than on JAFZA,” Trask said.
“In the case of JAFZA, it’s a strategic asset also but the way to support it is a bit more complex because of the legal structure.
It is owned by Dubai World and we have a precedent in the government supporting it financially but not sufficiently for it to avoid a restructuring which, under our criteria, would constitute a default.”
Dubai World got $9.3 billion of new capital from the Dubai government as part of its $25 billion restructuring last year, following the conglomerate’s shock announcement in November 2009 that it could not meet its debt obligations.
At 1115 GMT, the DIFC sukuk due in June was trading at 93.828 on the bid side, while the JAFZA paper , maturing in November 2012, was seen at 92.750.
A number of other regional corporates in the Gulf region have significant maturities in 2012, including Abu Dhabi’s Aldar Properties and Saudi real estate firm Dar Al Arkan , Trask said.
Refinancing these obligations would prove trickier due to the withdrawal of European banks from the region’s lending market, he added, although local banks are currently showing signs of filling the funding gap, S&P’s associate director, infrastructure finance Karim Nassif said.
“Last year, the proportion of debt investment into the region was probably more internationally biased versus local and regional banks”.
“Now there’s been a shift and, depending on who you talk to, there’s a consensus around 60/40 local versus international. So that puts the onus more on local banks going forward.” ($1 = 3.6730 UAE dirhams) (Reporting by David French; Editing by Dinesh Nair and Jon Loades-Carter)