DUBAI: Dubai, which roiled markets with its request to delay US$25 billion of debt payments in 2009, faces the prospect of rising borrowing costs if it succeeds in a bid to hold the Expo 2020 World Fair, Bank of America Corp said.
The emirate needs about 26 billion dirhams or US$7.1 billion of infrastructure spending to host the event, HSBC Holdings Plc analyst Patrick Gaffney said by phone.
At the same time, Dubai has about US$42 billion of debt coming due over the next two years, Bank of America said.
"The possible increase in Dubai's external borrowing needs if it's awarded the Expo 2020 could put pressure on the emirate's borrowing costs given the crowded maturity schedule across Dubai Inc," Jean-Michel Saliba, an economist at the US lender in London, said on Monday in e-mailed comments.
Dubai's credit risk has fallen in the past year amid a series of successful debt restructurings, while those of its regional peers increased. The yield on the emirate's US$750 million 7.75 per cent bonds maturing in October 2020 fell 80 basis points last month to 4.58 per cent on Monday.
Dubai has "high hopes" of winning, Sheikh Ahmed Saeed Al Maktoum, head of the emirate's Supreme Fiscal Committee, said last week. Sao Paulo, the Turkish city of Izmir and Russia's Ekaterinburg are all competing to host the event.
The Paris-based Bureau International des Expositions will announce its selection November 27.
Dubai expects to attract about 25 million visitors based around the theme of "Connecting Minds, Creating the Future" and plans to build a 4.3 million square-metre exhibition area at a site in the desert south of the city to host presentations from 182 countries.
"The government is planning to spend about 26 billion dirhams on infrastructure for which we do not know the funding source," HSBC's Gaffney said on Sunday.
"We estimate that a further 30 billion dirhams will be raised through debt and equity from private companies that are building hotels."
The emirate probably won't be able to count on direct support from larger neighbor Abu Dhabi to help it repay debt next year after it rescued Dubai from the crash with a US$20 billion lifeline, Moody's Investors Service said in a March report.
The rating's agency expects banks to be "very cautious about funding some of the projects and businesses that may have a limited economic value once the Expo is over," Khalid Howladar, a senior credit officer at Moody's, said on Monday.. Bloomberg