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Dubai’s $80 billion debt reasonable, HSBC’s nasr says

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08 Oct 2009 02:10 PM

DUBAI - Dubai’s $80 billion of state-related debt is “reasonable,” given the economy’s size and growth rate, and HSBC Holdings Plc will lend to companies facing funding problems, the bank’s Middle East chairman said.

“If you believe the Middle East story, you have to believe the Dubai story,” HSBC Bank Middle East Ltd. Chairman Youssef Nasr said in an interview yesterday. “Temporary mismatches in supply and demand” in the property market need to be addressed, he said.

The global credit crisis has hurt Dubai’s key property, tourism and financial services industries and led to thousands of job losses. Property prices in the second-biggest of the United Arab Emirates’ seven states fell 49 percent from their peak a year ago, Jones Lang LaSalle Inc. said on Aug. 16.

Dubai’s government and state-owned companies must repay at least $4.52 billion of debt this quarter, Deutsche Bank AG said Sept. 15. Last month, Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum said he isn’t worried about the emirate’s ability to repay debt this year.

Loan terms for “sound” real estate projects could be adjusted to reflect the affect of the credit crisis, said Nasr, 55, who moves to Hong Kong in February as the chairman of HSBC’s global private banking unit.

“Sometimes, things happen which delays the realization of a project,” he said. “It’s not saying that the dream has evaporated, it’s just that it is going to take a little longer for it to reach where it was supposed to reach and so there is a need for some bridge financing.”

Dubai World

Dubai World, the state-owned holding company, is in talks with banks to reschedule at least $12 billion of debt, a person close to the talks said Sept. 14, speaking anonymously because the negotiations are private. Dubai World’s property unit Nakheel PJSC, which is building palm tree-shaped islands off the emirate’s coast, is likely to need help repaying an Islamic bond of $3.52 billion, Moody’s Investors Services Inc. said June 10.

Dubai borrowed $10 billion from the U.A.E. central bank in February to help state-related companies facing funding problems after the collapse of credit markets. Dubai’s Department of Finance is in the process of raising another $10 billion.

In addition to the government’s $10 billion debt, state- related companies borrowed another $70 billion to fund the emirate’s transformation into a tourist and financial services hub. That debt is reasonable considering the use of funds and Dubai’s position in the U.A.E., said Nasr, who was president of HSBC Bank Brazil from 2003 to 2006 before becoming the bank’s chief executive officer in the Middle East in 2007.

HSBC is the biggest foreign bank operating in the U.A.E., which has the largest banking industry among the six Persian Gulf Arab countries.

Source: Bloomberg

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