Dubai: The profits from the new $1.25 billion, two-tranche Islamic bond, only in Dubai has provided ample funds that will suffice to manage the budget deficits and refinancing plans of the whole United Arab Emirates.
This was disclosed by a senior official of the UAE government while expressing content on the growth of Sukuk i.e. Islamic bonds.
The Department of Finance declared Dubai priced a $600 million, 5-year tranche at 4.9 percent and a $650 million, 10-year tranche at 6.45 percent. The department also confirmed that the issues drew orders of more than $4.5 billion.
In an issued statement by Department of Finance at Dubai, Director General, AbdulRahman Al-Saleh, stated, “This sukuk issuance provides us enough liquidity to manage our budget deficits and refinancing plans proactively.”
“We continue to examine ways to optimize our funding strategy by diversifying our funding options and extending maturities,” he said.
Saleh admitted that if compared with previous debt issuance of similar tenors, Dubai has failed to reduce its cost of funding on the sukuk.
Including two significant maturities in 2012, Jebel Ali Free Zone (Jafza) and DIFC Investments, The UAE government is still restructuring some debt at state-linked firms. The two significant projects are likely to reimburse a combined $3.25 billion this year.
A $26 billion debt deal at flagship conglomerate Dubai World proved to be the largest restructuring in UAE. The debt deal was signed in 2010 and had rattled the markets globally a year before, in 2009.
Dubai has taken vigorous steps to recover from the debt crisis in 2009-10 that slowed down its economic growth. However, Dubai has been recovering well on the back of strong trade ties with the Asian countries besides tourism as it is considered to be a business hub having status of safe-haven amid a wave of social unrest in the Mena region last year.
Saleh said, “Investors were happy with the steps taken by the government over the last three years to counter the impact of financial crisis and prudent measures to control costs and manage its budget deficit.”
A prospectus for the latest sovereign bond has revealed that the budget deficit of the UAE was dipped sharply to AED 3.7 billion ($1 billion) last year. This all happened due to the higher income by selling oil and spending limited budget on development projects.
A safe estimation says that this represents 1.2 percent of 2010 Gross Domestic Product. GDP data for 2011 has yet to be released. The prospectus also said that a shortfall of AED 1.8 billion is planned for 2012.
As per prospectus, at the end of March this year, the debt by Dubai government stands at AED 113.6 billion ($30.9 billion). However, analysts polled by Reuters in March put the UAE overall debt including government-owned firms at an estimated $118 billion, or 144 per cent of GDP.