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Dubai assets exceed debt

By Nitin Nambiar




The volume of debt raised by Dubai-based companies has remained at a relatively low 42 per cent of its gross domestic product, or GDP, in spite of aggressively raising funds via fixed-return instruments this year, ratings agency Standard and Poor’s has estimated.

Analysts have said Dubai’s assets – which include real estate both in and outside the emirate, aviation and tourism interests and government revenues in the form of tolls and taxes – still far exceed its debt. Also, the money being raised through debt is being utilised to create long-term infrastructure and assets.

The numbers for Dubai are a testimony to the success of sukuk that companies from the emirate have raised globally over the past year. This year more than $19 billion (Dh69.3bn) was raised through sukuk from the Middle East alone, according to figures compiled by Zawya.com.

About $51bn (Dh187bn) worth of sukuk were issued last year globally. Thirty-one per cent of them were issued from Saudi Arabia while 30 per cent came out of Malaysia and 23 per cent from the UAE.

In regard to overall bond issuance, GCC sukuk market sales for the first time surpassed those of Malaysia at the end of the first half of this year. Malaysia has traditionally been the market leader in raising funds via sukuk. What has made regional sukuk more attractive to foreign institutions and investors this year is the fact that they issued and traded in US dollars. Malaysian bonds are denominated in ringgit.

Sukuk by Dubai-based firms have attracted interest from European banks, insurance and pension funds. At a time when Gulf economies are looking stronger on the back of record oil prices, sukuk present great investment opportunities.

Mortgage firm Amlak Finance has said that it plans to sell asset-backed Islamic bonds worth about $260 million (Dh954m) to finance expansion. The firm also told Emirates Business last week it plans to raise Dh6bn to finance operational expansion.

This month, Jebel Ali Free Zone listed a Dh2.04bn sukuk at Dubai International Financial Exchange .

Most of the sukuk originating from the emirate have also been assigned the highest ratings. S&P’s assigned its “A” preliminary rating to Dubai Islamic Bank’s US dollar floating-rate sukuk due in 2012.

Moody’s assigned a rating of “A1” to the DIFC Investments sukuk. Nakheel, one of the largest developers in the region, has also issued a sukuk that investors have lapped up.

“The fact that all of this debt is backed by tangible assets means Dubai’s growth is not a bubble,” one analyst said.

Islamic mortgage lender Tamweel closed the region’s first structured financing deal, selling $210m (Dh770m) of mortgage-backed bonds to free up cash for expansion.