INTERVIEW: UAE Sheikdom To Reduce Debt, Avoid Dubai Crisis - WSJ.com

Ras Al Khaimah wants to avoid the financial problems of fellow sheikdom Dubai and reduce its 5 billion U.A.E. dirhams ($1.36 billion) of debt after funding a development splurge with Islamic bonds, a senior official said.

"We'd like to reduce this structural debt and then bring in partners," Jim Stewart, chief executive of the Ras Al Khaimah government's Investment and Development Office told Zawya Dow Jones in an interview.

Investors will share equity in some of the emirate's 16 government-related companies--which could also sell shares to the public in a few years--or help develop its major projects, said Stewart, from his office this week.

Ras Al Khaimah, the fourth-largest member of the U.A.E. and the last sheikdom to join the federation, wants to reduce its modest debts after watching Dubai allow borrowing to get out of control.

Dubai was forced to call on the financial support of its oil-rich neighbor Abu Dhabi and the federal government after it emerged that one of its largest state-owned companies needed to restructure $26 billion of debt.

"We take no money from Abu Dhabi," he said. "As we go forward, we find that on a macro level, our debt needs are lower in terms of supporting our companies."

The emirate has about AED3.6 billion of sukuk listed on the London Stock Exchange and doesn't have plans for more borrowing.

According to Zawya.com, the government has an ongoing $2 billion sukuk program and sold $400 million of bonds in July last year in the first U.S. dollar sukuk issue by an emirate in the U.A.E. It sold AED1 billion of sukuk in May 2008. Ras Al Khaimah Investment Authority, or Rakia, sold a $325 million sukuk in 2007.

The government is rated 'A/A' by Fitch and Standards & Poor's ratings agencies.

Ras Al Khaimah, which has struggled to attract investment on the same scale as bigger emirates like Dubai and Abu Dhabi, has built up raw materials and mining industries. It's also making a foray into real estate and tourism by building resorts and an amusement park along its Persian Gulf coastline.

"We built up this emirate on a needs-basis," he added. "We haven't just gone out and built things. Most of the work we're doing is an expansion of our assets."

Those assets include a maritime free-zone business park and Ras Al Khaimah International Airport.

The emirate is also home to the world's largest tile maker, Rak Ceramics, and is building up its ports to boost trade, while developing docks overseas in Georgia and India. The Investment and Development Office run by Stewart manages the government's investments and acts as a centralized debt management agency.

"In three to five years, we'd look to have key players join us in some of these key assets. Having gone through a rapid period of growth, it's actually very unusual you would own 100% of your airport and ports," said Stewart.

With the airport expected to break-even next year, and real estate projects reaching completion, Ras Al Khaimah will look for "more flexible funding for projects," and expects that its companies will borrow on their own books rather than rely on the government issuing sovereign debt.

It will also look to neighboring emirates for partnerships. "We're well-positioned now to do more, with Dubai, with Abu Dhabi," Stewart said. "Some of our assets fit in well with what they do."