The external debt of Dubai currently stands at $60.6 billion, but there is little to suggest the debt level is unsustainable and fears over the emirate’s credit position are “significantly overblown”, EFG-Hermes said on Monday.

The Egyptian investment bank said in a research note that the outstanding debt of institutions wholly- or majority-owned by Dubai government and Dubai Holding was projected to incur a repayment of $1.1 billion over the remainder of 2008 and $14.1 billion in 2009.

If institutions with a minority stake held by government or quasi-government institutions are included the total debt figure rises to $64.6 billion, with additional payments of $100 million in 2008 and $1.7 billion in 2008, the bank said.

The global financial crisis and tightening credit markets have made it much more expensive and difficult to borrow in recent months, focusing attention on companies’ ability to refinance outstanding debt.

Particular attention has fallen on Dubai, where many state-owned companies are highly leveraged and there are not large oil reserves.

EFG-Hermes said Dubai’s debt obligations were “well within the parameters set by international agencies”.

“…we believe the significant widening in CDS (credit default swap) spreads for Dubai-based institutions… is unwarranted and current concerns over Dubai’s level of indebtedness to be significantly overblown,” EFG-Hermes said in the note.

The bank said widening CDS spreads were more likely due to “high risk aversion, poor transparency and disclosure, and relatively low liquidity”.

Source: Arabian Business

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