Dubai's government said on Sunday it had repaid a $1 billion Islamic bond , or sukuk, from the emirate's civil aviation authority which matured on November 4. The global credit crunch has hurt Dubai, one of seven members of the United Arab Emirates, leaving markets guessing whether it can restructure an $80 billion debt pile built up in years' of real-estate fuelled boom.
The emirate has about $4 billion to restructure over the next two months, including the world's largest Islamic bond to date, a $3.5 billion issue, from the developer of its palm-shaped islands Nakheel.
"This comes after the government of Dubai issued a two-tranche, $1.93 billion sukuk ... which generated a large order book with over 300 investors placing orders in excess of $6.3 billion," the Department of Finance said in a statement.
Investors - often starved of information in a region known for its lack of transparency - were keen to see how Dubai would be able to tap markets still suffering from last year's financial turmoil after its first fixed income foray in more than a year
"Dubai's repayment is a show of good will but there is plenty of debt out there that requires adequate repayment and we are still at the starting line," said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole in Riyadh.
Ratings agency Moody's downgraded five Dubai state-linked entities on November 4 including port operator DP World, citing concern over their access to government financial support.
Dubai raised $10 billion in emergency cash from the UAE's central bank early this year through a bond issue as part of a plan to raise a total of $20 billion to finance obligations still pending, setting up a support fund to manage the proceeds.
"The government has reiterated that GRIs (government-related issuers) debt obligations ... are not regarded as obligations of the government ... and that the government is under no obligation to extend support to any such GRI," Moody's said.
The government has also tightened criteria to the recently established Dubai Financial Support Fund. Moody's said among these criteria are whether the GRIs are able to demonstrate sustainable business plans, the continuing support of their existing financial creditors and whether they have realistic prospects of fulfilling repayment obligations.
The government of Dubai launched a $6.5 billion bond plan in October, consisting of $4 billion euro medium term notes and a $2.5 billion Islamic bond, or sukuk, programme.