As financial markets continue to roil following Dubai World’s request to restructure $3.5 billion of Islamic debt falling due next month, some clues behind the surprise decision can be found in the circular document for a bond offering that the government made in late October.
On October 21, the government issued a preliminary prospectus to raise $4 billion through a Euro Medium-Term Note programme. At the same time, Dubai’s department of finance issued another prospectus to raise up to $2.5 billion through sukuk bonds.
Within both documents the government itemized, for the first time, what it considered to be the obligations of Dubai Inc – the sovereign itself and related entities. Dubai World and its entities, including real estate developer Nakheel, were not on the list. It’s a crucial point that bond investors seem to have missed. Indeed the documents say that the “aggregate direct debt of the Dubai government” is only Dh71.21 billion ($19.4 billion) – much less than the $80 billion to $90 billion now being widely reported.
Those sovereign debts have since risen to $26.4 billion following the sukuk transaction – a dual-tranche offering that raised $2 billion eventually – and the $5 billion that Dubai received from two Abu Dhabi government-majority owned banks on Wednesday November 25.