Decline in the Arabian Gulf

Dubai facing $48bn debt challenge - StanChart

Dubai faces nearly US$50bn of debt maturities between 2014 and 2016 but, unlike the crisis in 2009, is better equipped to handle redemptions due to an economic rebound, Standard Chartered said in a research report on Wednesday.

Arabian Business,

7 November, 2012

In the note, the UK-based lender said Dubai, propelled into the global limelight three years ago after asking for a US$25bn debt restructuring for one of its flagship investment vehicles, has made little progress on raising cash from asset sales and the emirate's overall debt burden remains a challenge.

The report added that sovereign debt has ballooned in a very short space of time, as the government borrows to support its entities and invest in infrastructure projects, with government debt accounting for about 30 percent of Dubai's total debt.

However, a rebound in Dubai's key industries - tourism, trade and logistics - and the shift away from the construction and property-driven boom which helped fuel the previous crisis will help drive sustainable economic growth and assist Dubai with the debt overhang.

"Steady economic growth should allow issuers to generate stronger cash flow, and should also help banks increase their deposit bases further - giving them greater flexibility in terms of debt rollovers," the report said.

The report estimated that US$48bn of debt in the bond and loan markets is due to mature between 2014-2016, which includes about US$10bn in restructured debt at state-owned Dubai World and Nakheel

"Without a material improvement in either Dubai World's or Nakheel's financial profile, this debt could be subject to another round of potential restructuring when it matures," the report said.

Standard Chartered also said wealthier neighbour Abu Dhabi's future support for Dubai debt would most likely apply only at the sovereign level or strategically important government entities.

"Abu Dhabi's support for Dubai's debt [at the sovereign level] is likely to be in the form of new funds [if necessary] or the rollover of existing facilities. For example, we believe that the US$20bn of credit granted to Dubai by Abu Dhabi/the UAE central bank would be rolled over in 2014, if necessary."

Kuwaiti offices half empty after hub bid runs aground

Almost half the office space in Kuwait's financial centre lies empty after plans to become a regional business hub rivalling Dubai were wrecked by the financial crisis and the difficulties of doing business in the Gulf state.

Arabian Business,

7 November, 2012

Kuwait's economy has long been underpinned by its oil production but growth in other sectors has only been moderate and observers such as the International Monetary Fund have stressed the need for Kuwait to diversify its economy.

Developers went on a building spree after the overthrow of Iraq's Saddam Hussein in 2003, believing that businesses would flock to Kuwait once the region stabilized.

But the financial crisis and an unfavourable regulatory and infrastructure environment kept many companies away, with recent political tensions putting off both local and foreign investors.

Unfinished tower blocks now dot the skyline of the capital Kuwait City, where even prime locations struggle to fetch more than half their rental value from before the crisis, real estate officials said.

Occupancy in Kuwait City is 55 percent, said Tawfiq al-Jarah, the head of the union of Kuwaiti real estate companies.

"There is a glut of supply of office space," he said. "Occupancy is the engine and dynamo of the property market."

"We sense that the government is taking this issue seriously this time," Jarah said, adding that the government had indicated it would rent spaces instead of building new offices.

The average monthly rental rate is KWD6.9 (US$24.55) per square metre, compared to KWD13 to KWD14 before the crisis, he added. In the country as a whole there are 817,000 sqm of office space and only 59 percent of that is occupied.

According to research by Kuwait Finance House, one of the Gulf's biggest Islamic lenders, commercial property prices have also halved in since 2008.

The downturn has hit real estate companies hard, with several closing down or having their shares halted from trading on the stock exchange.

Upheaval in the major OPEC oil producer has deterred foreign investors. Kuwait consistently ranks lower than other Gulf Arab states in global business and competitiveness rankings.

Political turmoil in Kuwait, which borders fellow oil producers Saudi Arabia and Iraq and sits across the Gulf from Iran, has also held up a 30 billion dinar development plan.

Last year the Kuwait Investment Authority, the country's sovereign wealth fund, said it was setting up a real estate portfolio with 1 billion dinars of capital to invest locally. But market observers say they have yet to feel the effect.