Dubai has set up a $5 billion Euro Medium Term Note Program, official documents showed Sunday, June 12, 2011.
According to the EMTN’s base prospectus dated June 10, 2011, a copy of which has been seen by Emirates 24|7, the net proceeds from the issue of each tranche of notes may be used for infrastructure, financing and general budgetary purposes by the issuer, i.e., the Government of Dubai.
Mitsubishi UFJ Securities International, Standard Chartered Bank and UBS Investment Bank have been appointed as arrangers and dealers for the program while Emirates NBD and National Bank of Abu Dhabi are the dealers for the program. Deutsche Bank’s London branch has been nominated to act as the fiscal and paying agent.
According to the prospectus, Dubai government’s total direct debt stands at Dh115.4b as of May 20, 2011. This works out to just above 38 per cent of the emirate’s Dh300b estimated GDP in 2010.
“The public finances of the Government of Dubai are cash based which results in temporary mismatches between revenues and expenses,” says the prospectus. “The Government of Dubai uses overdraft facilities from UAE banks to fund such shortfall and invests any temporary surplus in short-term deposits with UAE banks,” it adds.
“All government entities now need to obtain approval from the SFC [Supreme Fiscal Committee] prior to borrowing from third parties,” it notes. “The SFC also has the right to permit entities to borrow on their own credit strength or with the support of an explicit government guarantee. Other than such overdraft facilities, the aggregate direct debt of the Government of Dubai was Dh115.4 billion as at May 20, 2011.
“This debt includes funds borrowed by the Government of Dubai to finance (i) the expansion of Dubai International Airport; (ii) the first phase of the construction of Al Maktoum International Airport; (iii) other infrastructure projects in Dubai; (iv) borrowings by ICD itself but not of any of its subsidiaries or other group companies; and (v) related party debt from the Abu Dhabi Government and the Central Bank of the UAE for the DFSF [Dubai Financial Support Fund] and the restructuring of the Dubai World Group.”
Dubai has budgeted government revenues in 2011 of Dh29.9b, slightly higher than the revenues in 2010, and has budgeted total expenditure to be Dh33.7b, which is approximately 6.4 per cent lower than 2010 expenditure, resulting in an overall budget deficit of Dh3.8b in 2011 compared with a deficit of Dh6b in 2010.
In December 2010, the UAE’s Federal National Council passed the Public Debt Law under which the total value of UAE’s public debt should not be more than 25 per cent of GDP or Dh200b, whichever is lower at the time of issuing public debt. According to the Dubai prospectus, the Public Debt Law is awaiting the approval of the President of the UAE and is therefore yet to be enacted. “The Public Debt Law could therefore change before it is enacted,” the prospectus said.
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