Dubai seen selling assets, issuing bonds to pay debt

Debt issuance

A packed debt repayment schedule in the next two years could put pressure on Dubai to issue debt. If that proves difficult, the Gulf state may have to seek funds from neighbours Saudi Arabia, Kuwait or Qatar, analysts say.

"They have quite a lot of redemptions coming up for 2011 and ... in 2013 and 2014, so it seems like they do have a need but it is whether or not they will be able to get an attractive yield to issue now," said a strategist at BNP Paribas in London.

Dubai's finance chief told Reuters last month the emirate would keep its options open about a potential debt issue later this year but was not under pressure to go to the market.

Dubai officials met with fixed income investors in Asia last month, seen as a sign a bond issue could be on the cards.

"They could probably do USD 500 million to a billion, much beyond that will be tricky," said a fixed income investor. "Asian private bank money is still quite hungry for yield. A seven-year piece of Dubai paper with a nice yield to it would probably do quite well."

The government's utility company DEWA attracted USD 11.5 billion in bids for a USD 1 billion bond in April but had to pay a generous 1.25% premium to the underlying sovereign. The yield on Dubai's paper maturing in 2014 has come down to 6.8 percent from a high of 10% in February.

Alternatively, Dubai may have to approach neighbours like Saudi Arabia and Qatar with a debt issue. Abu Dhabi would only be on hand again in the worst-case scenario, analysts say.

"Maybe USD 500 million each from Saudi, Kuwait and Qatar would not really move the needle (there)," the fixed-income investor said.

Analysts, however, say that could carry risks, making asset sales and bond issues the more likely way forward.

"Does Dubai want to be seen as a sort of Lebanon that needs to go cup in hand around the region trying to raise concessionary money?" the investor said.