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Dubai raises bond billions to pay debt

DUBAI, Nov 25 – The government of Dubai said on Wednesday it has raised five billion dollars in a new bonds issue aimed at helping meet its debt obligations, but said it will ask creditors of its Dubai World conglomerate for a debt moratorium of at least six months.

The five billion dollars in bonds, the second tranche of a 20-billion-dollar bond programme, were fully and equally subscribed by two Abu Dhabi-controlled banks, National Bank of Abu Dhabi (NBAD) and Al-Hilal Bank, a leading Islamic lender, the Dubai finance department said in a statement.

"The amount issued was determined by (Dubai\’s) current needs and obligations," the statement said.

The first amount of the new tranche scheduled to be drawn down is one billion dollars, and will be split equally between a conventional bond issue to NBAD and a sukuk, or Islamic bond issue, to Al-Hilal Bank, it said.

The subscription by Abu Dhabi banks indicates that the oil-rich emirate is prepared to help ease Dubai\’s financial woes, as private sector interest in lending to Dubai appears limited.

"It is in line with our view that there will be limited pure-private interest," said Dubai-based economist Monica Malik, from the regional investment bank EFG-Hermes.

"Although the bond has not been bought by a federal entity, both of the banks are Abu Dhabi government-controlled banks," she told AFP.

The first tranche — of 10 billion dollars — was fully subscribed several months ago by the United Arab Emirates central bank.

It is not clear which government entities or corporates would benefit from the new cash injection, but Dubai World, which reportedly alone has liabilities of some 59 billion dollars, appears to be left out.

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The government announced on Wednesday that it will revamp the Dubai World group, and wanted its lenders to extend its maturing debt for at least six months.

"Dubai World intends to ask all providers of financing to Dubai World and Nakheel to a \’standstill\’ and extend maturities until at least 30 May 2010," said a statement issued by the Dubai Financial Support Fund (DFSF).

Giant property developer Nakheel, part of Dubai World and until recently the jewel in the crown of Dubai\’s construction boom, was due to pay off some 3.5 billion dollars in maturing Islamic bonds in December.

Nakheel was the developer behind the man-made palm-shaped Palm Jumeirah island and a cluster of islands taking the shape as a map of the world.

The building of two similar, but larger, palm-shaped islands has been brought to a halt by the financial crisis.

The Dubai government said the newly raised capital "is not linked to the restructuring of Dubai World and is meant for the general purposes of DFSF," the latter said.

"The intention to reschedule Dubai World\’s debt is disappointing. It is likely to be received badly by the market," said Malik, adding that "Dubai\’s debt obligations for 2010-2011 are already high."

EFG-Hermes issued a research note late on Wednesday pointing out that Dubai\’s overall debt repayment schedule is expected to be 13 billion dollars in 2010 and 19.5 billion dollars in 2011.

It added that Nakheel\’s extension would coincide with the maturing of its 3.6-billion-dirham (980-million-dollar) sukuk in May 2010.

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"The last thing we would like to see is for a domino effect resulting in several debt obligations having to be extended," EFG-Hermes added.

Dubai\’s total debt reached 80 billion dollars last year, of which government companies owed some 70 billion dollars.

International ratings agency Standard and Poor\’s said last month that state-related companies in Dubai are due to repay nearly 50 billion dollars in debt within the next three years.

The government said that the funds it raises will be used to provide liquidity "on a commercial basis to the government and government-related entities undertaking projects deemed to be of strategic importance within Dubai."

The fortunes of the city state changed when the global financial crisis dried up available financing and brought its rapidly growing property sector to a screeching halt.

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