Dubai Debt Poses Challenges in 2012

2012 will be a challenge for Dubai according to financial strategists who say that the emirate must find a way to settle $10 billion in debt due over the year ahead. The debt is a legacy of the financial boom experienced between 2002 and 2008, and became a serious, pressing problem when developer Dubai World restructured $25 billion in debt in 2009.

Among the debts due to paid in 2012:

1)  February, 2012: $500 million bond due on Dubai Holding Commercial Operations Group (DHCOG), the property and leisure arm of the Dubai Holding conglomerate, which is owned by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai.

 2)  June, 2012: $1.25 billion Islamic bond due for repayment by Dubai International Financial Center Investments.

3)  November, 2012 $2 billion Islamic bond due from Jebel Ali Free Zone Authority, part of the Dubai World conglomerate. Dry Dock World, another Dubai World operation needs to restructure $2billion in debt in the coming months.

A major concern about Dubai’s ability to meet its obligations is the significant tightening of credit by European financial institutions in the midst of the Continent’s financial crisis. There is also concern about ability of Dubai’s banking establishment to absorb debt as it has done in the past.

For the last several years, Dubai has made significant progress in paying off its obligations and has exercised discipline and savvy business judgment in the process. Analysts’ fingers are crossed that the emirate can continue to do so under the pressures posed in the year ahead.