Strong government borrowings hit private sector

Private sector companies are finding it difficult to raise debt as there is shortage of liquidity due to strong demand for funds from the government and government-related entities (GREs) in the UAE, said a senior official of Abu Dhabi company.

The GREs are raising billions of dirhams through bonds and bank loans to repay their debt maturities while the government is raising cash to fund infrastructure projects, creating paucity of liquidity in the market.

“There is of course demand for debt issued by the companies like us; but borrowing of government entities is reducing availability of funds to the private sector,” said Mohammed Alqubaisi, chairman of Finance House.

Last month, Dubai government sold $1.25 billion worth of bonds - its first such sale since the emirate's financial crisis erupted last year.

The sale was split between $500 million in five-year bonds yielding 6.7 per cent interest and $750 million in 10-year bonds with a 7.75 per cent yield.

Dubai-based property major Emaar Properties said also earlier announced that it would issue $450 million in convertible bonds.

Alqubaisi said: “We are now starting to see improvements in overall economic environment in the UAE with the resolution of several of the issues (such as Dubai World) that have dampened the sentiments. People are investing and taking decisions again. “