(Bloomberg) --
Dubai is in talks with bankers about shoring up its finances and the emirate’s flag carrier is mulling billions of dollars of loans, as the coronavirus pandemic hammers the economy.
The government is discussing various options, which could include the nation’s first Eurobond since 2016 and loans, according to people familiar with the matter, who asked not to be identified. Talks are at an early stage and no decision has been made, they said.
If Dubai does tap the bond market, it would follow other governments from the region that have sold dollar debt or started the process since the spread of the virus rocked global markets. Qatar entered the market on Tuesday with a five- 10- and 30-year deal that will probably price later in the day. Israel issued $5 billion, including the Middle East’s first sovereign century bonds, last week.
A representative for Dubai’s Department of Finance declined to comment.
Like many other cities around the world, Dubai is in full lockdown as it seeks to contain the virus. The Middle East’s main business and travel hub is especially vulnerable given its open economy and reliance on tourism and trade.
The Expo 2020 exhibition scheduled for October is set to be delayed by a year. The event was seen as key to boosting an economy that was already growing slowly.
“Dubai needs to raise funds to mitigate financing pressures in relation to various state-owned entities,” said Ksenia Mishankina, a senior credit analyst at Union Bancaire Privee in London. A fall in interest rates in the developed world this year “should create conditions of a hunt for yield among investors,” she said.
Emirates Airline is reaching out to local and international banks about funding in addition to state aid it received last month, according to people with knowledge of the matter. The world’s largest long-haul airline suspended almost all its passenger operations around the same time.
The yield on Dubai’s $500 million bond maturing in 2043 rose 1 basis point to 5.87% on Monday, extending its climb since since early March to about 170 basis points. Dubai’s conventional dollar debt has lost 20% over the past month, compared with the average in emerging markets of 14%, according to Bloomberg Barclays indexes. Its sukuk notes are down 4.5%.
Although Dubai isn’t rated by one of the three major firms, bond pricing suggests investors see it as a riskier borrower than Israel or Qatar, both of which are assessed as AA- by S&P Global Ratings.
The United Arab Emirates, of which Dubai is a part, unveiled a 50-billion dirham ($13.6 billion) aid package for banks last month. Lenders are also allowed to free up capital buffers, which will make another 50 billion dirhams in liquidity available.
Business conditions in the U.A.E. worsened at a record pace in March as the virus shut down much of the economy. The country has reported 2,076 cases of infection, with 11 deaths.
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