May 7, 2020 / 1:01 PM / a month ago

Dubai in talks for financing backed by road toll revenue: sources

DUBAI (Reuters) - Dubai is in talks with banks to raise a financing worth billions of dollars which would be backed by road toll revenue, one of the main income generators for the government amid the coronavirus crisis, three sources familiar with the matter said.

Dubai’s economy has been hit hard by virus containment measures that have brought to a near standstill crucial sectors such as aviation and tourism, and it lacks the oil wealth of its neighbour Abu Dhabi to cushion the financial impact.

The emirate has been in discussions with banks for a financing which could be worth billions and would be raised by the Dubai Roads and Transport Authority (RTA), said the sources.

The loan would be repaid using the roads authority’s revenues and income generated by electronic toll collection system Salik, operated by RTA.

One source said the discussions were “serious” but that it was not clear yet whether the deal would involve a securitisation of the toll road receipts.

The Dubai department of finance declined to comment while RTA did not immediately respond to a comment request.

Dubai has been in discussions with banks for several fundraising options including loans and privately placed bonds, sources have said, as the Middle East trade, tourism and transport hub faces what is probably the most severe downturn in its history since a 2009 debt crisis that wobbled its economy.

Analysts have estimated the virus outbreak could cost Dubai 5% to 6% of its gross domestic product (GDP) in 2020.

It has also revived concerns about the emirate’s debt burden and could potentially force Dubai to seek external support similar to the bailout extended by oil-rich Abu Dhabi after the 2009 crisis.

The United Arab Emirates has shut its borders to foreigners to try and contain the spread of the virus, locking out millions of tourists who visit Dubai each year.

Last week, rating agency Moody’s downgraded the credit rating of Dubai port operator DP World (DPW.DI) by two notches to Baa3, the lowest investment grade because of rising debt.

Moody’s also downgraded state-owned Dubai Electricity & Water Authority (DEWA).

Many investors view the ratings of government-related entities in Dubai as an indicator of the government’s own credit profile as Dubai is not rated by any of the major agencies.

“Moody’s expects the coronavirus outbreak will aggravate the structural slowdown in real GDP growth for the Emirate of Dubai, contributing to the further deterioration of fiscal strength of the government via increasing debt levels,” the rating agency said in a report last week.

Economic growth in Dubai was already sluggish before the coronavirus outbreak.

The emirate had pinned its hopes to receive an economic boost from hosting Expo this year, but the business and cultural event is now set to take place from October 1, 2021 until March 31, 2022, roughly a year later than initially planned.

Reporting by Davide Barbuscia; Editing by Toby Chopra

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