Dubai is relying on what it does best to help solve its debt woes: shopping. After successfully borrowing against road toll receipts last year, the flashy emirate now wants to raise at least $500-million (U.S.) by issuing bonds secured against future revenue from its giant airport retailer, Dubai Duty Free. Securitization is often seen as the last refuge of the cash-strapped, and is nascent in the Middle East. But as Western banks withdraw, it's looking increasingly attractive.
In an ideal world, Dubai would stick to vanilla financing as it rebuilds credibility in financial markets. But with bank credit scarce, alternatives such as Islamic bonds and securitization are coming into focus. There was plenty of appetite for the $800-million securitization of Dubai's toll road receipts last year.
Attempting to copy the trick with Dubai Duty Free should reassure investors that the emirate is willing to put its good assets to work to manage its still-huge debts. Dubai's core state companies owe an estimated $34-billion, according to Moody's, with roughly $4-billion due to mature this year. Proceeds from a Dubai Duty Free securitization would help ease the pain.
The retailer – which is the biggest single airport-based operation in the world, bigger than Singapore and New York's JFK – seems immune to its host's woes. Revenue rose by almost 16 per cent to $1.5-billion last year. And growth is set to continue. The number of passengers passing through Dubai International Airport has more than doubled in six years to 51 million in 2011, and is expected to hit 98.5 million by 2020. The current 18,000 square metres of retail space will grow by 44 per cent when a new concourse opens this year. In a region dominated by expatriates and where it can be difficult to buy alcohol, a pit stop in the scrum at duty free is a must for many.
On the surface, the risks to investors appear small. In order for revenue to dry up, Dubai would have to lose its status as a regional haven or see its crown jewel asset, Emirates airline, collapse. For Dubai, shopping could truly offer salvation.