DIFC Investments (DIFCI), the investment arm of the firm that runs Dubai’s financial free zone, has hired U.S. investment bank Moelis & Co to advise on options for a $1.25 billion Islamic bond maturing in June, three sources familiar with the matter said on Sunday.
The DIFCI bond, along with a $2-billion Islamic bond from Jebel Ali Free Zone (Jafza) which matures later this year, are in the spotlight as investors weigh Dubai’s refinancing risks in 2012.
DIFCI, whose assets range from aerospace to retail, saw profits wiped out in 2010 mainly due to the devaluation of its property portfolio in the aftermath of the 2008 global financial crisis which ended Dubai’s real estate boom. It posted a $272 million loss for 2010.
Standard & Poor’s estimated this month that DIFCI will need to raise $900 million in order to meet 2012 maturities, noting the government is likely to help the firm meet its obligations.
DIFCI, which repaid a $200 million loan to Deutsche Bank in December, had $119 million in cash at end of 2011, against $1.4 billion of debt falling due in 2012, S&P said.
“It makes some sense to hire an independent advisor for the sukuk. They (DIFCI) went slow on the hiring process but this should hopefully give them some viable options,” one banking source familiar with the matter said, speaking on condition of anonymity.
Among options that may be considered are refinancing the Islamic bonds or using funds from the emirates sovereign wealth arm to help repay the debt. Dubai’s government has said it had no plans to restructure the debt.
Refinancing the DIFCI or Jafza maturities through a new issue would require the companies to offer attractive profit or coupon rates on new issues, likely higher than that paid on the existing 2012 maturities.
DIFCI’s Managing Director Shahli Akram Juma declined comment. A spokeswoman at Moelis, an independent advisory firm which has worked on several restructurings in the Gulf Arab region, declined to comment.
Moelis’ highest-profile role was advising the Dubai government on the $25 billion debt restructuring of flagship conglomerate Dubai World. In 2010, it was also hired by Zabeel Investments, owned by the crown prince of Dubai, sources told Reuters last month.
Both DIFCI and Jafza are viewed as strategically important to Dubai, which means the state cannot afford to let them fail. Current prices on the Islamic bonds, or sukuk, indicate investors are pricing in state support.
DIFCI’s $1.25 billion Islamic bond maturing in June was seen at 94.25 levels on Friday, while JAFZA’s November 7.5 billion dirham ($2 billion) sukuk was last bid at 92.5/93 cents on Saturday.
Both bonds have seen a steady recovery from October lows at 87-88 levels amid heightened eurozone debt worries at the time.
The Gulf Arab emirate has clawed its way back from the depths of its crippling 2009 debt crisis, but still faces a massive debt burden, with approximately $15 billion in bonds and loans maturing this year alone, according to the International Monetary Fund.