Abu Dhabi Reins in on Debt Taken by Government-Owned Businesses

On Monday 22 October the Financial Times reported that Abu Dhabi has decided to tighten its debt rules as a response to a series of bailouts of state-linked companies.

**Abu Dhabi’s New Strict Debt Rules**
According to the FT, the debt policy document stamped by the Crown Prince and dated from 7 August is supposed to introduce greater accountability to the emirate’s ambitious development plans and put a halt to excessive spending by both public institutions and their international business partners.
From now on all state borrowing will have to be ultimately approved by the executive council, an advisory body overseen by the brother of the UAE president – Sheikh Hazza bin Zayed Al-Nahyan.

“The spirit of this is to have control over debt so they know what the Abu Dhabi government is really responsible for,” opined a senior Gulf banker. The capital of the oil-rich UAE has decided that it won’t take responsibility for any debts unless they have been backed by sovereign guarantees.
At the end of last year the government was forced to support its ailing real estate sector with a $4.6 billion (£2.87 billion) injection in Aldar, an Abu Dhabi property developer, raising the total state assistance to $10 billion (£6.24 billion). Despite having plenty of cash from its oil revenues, borrowing has increased considerably with the total debt of government-linked companies rising from $92.9 billion (£58.01 billion) in 2010 to $100.6 billion (£62.82 billion) as of March 2012.

!m[Sheikh Hazza bin Zayed Al-Nahyan, brother of the UAE president will oversee borrowing ](/uploads/story/623/thumbs/pic1_inline.png)“Those investments, whether they were well intended at the time or not, haven’t succeeded. So, there has to be a system to ask why have we put so much money in them and how can we control this?” said a senior banker quoted by the FT.

**Abu Dhabi Wealth Fund Back to Profit-Making in 2012**
In 2011 Mubadala, an Abu Dhabi sovereign wealth fund, made a $1.14 billion loss as declining real estate and financial markets led to big writedowns. Strong performance by the company’s oil and gas business fuelled by high oil prices was overshadowed by losses in its aerospace and semiconductor units.

Operating income for 2011 was down by 54 percent from 2010 to Dh1.2 billion (£204 million) mainly because of heavy capital expenditure and spending on research and development at the semiconductor manufacturing business – the Advanced Technology Investment Company (ATIC). Almost a third of the fund’s Dh177 billion (£30 billion) are tied up in the ATIC unit.
For the first half of this year the sovereign wealth fund swung back to profit of Dh851.54 (£144 million) driven by a drop in investment write-downs and higher revenues at key businesses.
“We continue to support Abu Dhabi’s economic diversification through investments in priority sectors, the development of social infrastructure, and the generation of economic returns for our shareholder.” said Mubdala’s chief executive Khaldoon al Mubarak.
**Non-Oil Sector Likely to Boost Abu Dhabi’s GDP**
According to the Abu Dhabi’s Department for Economic Development this year’s economic growth will likely beat the government’s 3.9 percent estimate as non-oil industries continue expanding.
“I expect it will be better than 3.9 per cent…We encourage banks to go for productive activity to encourage the manufacturing and industry sectors.” said undersecretary Mohamed Omar Abdulla in an interview.
Growth is expected to slow from 6.8 percent in 2011 but still be above the IMF’s forecast of 3.3 percent. Abu Dhabi, which holds Standard & Poor’s third highest investment grade, expects non-oil output to accelerate at an average pace of 6.5 percent over the next four years.
Non-oil industries in the emirate accounted for 48 percent of last year’s GDP and are expected to expand 5.5 percent in 2012. Non-oil merchandise exports more than doubled in July compared with the same month last year and imports declined 6.7 percent.