Stop the Dubai World, I want to get off

November 25, 2009

At long last, Dubai has admitted what has been obvious to everyone else for months: it can’t pay its debts.

This painful admission of reality, the signal to Dubai World’s creditors that they won’t see any of their money until at least next May, pulls the magic carpet out from under companies investors had thought would not default.

The straw that broke the Dubai camel’s back is a $3.5 billion sukuk bond. It had been due to be repaid on December 14. It won’t be.

The government’s argument will be scant comfort to bondholders. The plan is to restructure the emirate’s flagship firm and its sprawling portfolio, which includes plum assets like ports operator DP World, as well as a few dogs like the bizarre Palm developments built in the sea off the Dubai coast.

The task of unpicking this web falls to Deloitte partner Aidan Birkett. Sheikh Mohammed bin Rashid al Maktoum, Dubai’s ruler, may find himself making up the rules as Birkett goes along, since nothing as remotely embarrassing has been seen in Dubai before.

He will have his work cut out, and the indication that he can do this by next May looks like wishful thinking. Dubai World’s debts total $59 billion, including the borrowings of its Palm-owning subsidiary, Nakheel.

Dubai’s own restructuring is only just beginning. Some estimates put the emirate’s total external debts at almost $80 billion, money spent to finance its extravagant attempt to build a financial metropolis in the Gulf desert.

Dubai was already struggling to find external sources of new finance. Wednesday’s shock news will effectively close the markets, leaving it dependent on its petrodollar-rich neighbour Abu Dhabi. Abu Dhabi has already stumped up $10 billion. Only hours earlier on Wednesday, two of its banks had subscibed $5 billion for new bonds. Presumably, they did so in the knowledge of what was about to happen.

Investors are finding out the hard way about the risks of buying into a city state built on shifting sand that is not underpinned by oil. Dubai’s lot now rests entirely on the firmer foundations of its neighbours.

Comments

This is really ironic – unpaid debt is a crime in Dubai and can get you to jail (because there are no bankruptcy laws there)

Posted by Karel | Report as abusive
 

[...] from: Reuters Columns » Blog Archive » Stop the Dubai World, I want to … Share with others: These icons link to social bookmarking sites where readers can share and [...]

 

The uncle Sam is the biggest terrorist in the world.

Posted by Lonan Maerchu | Report as abusive
 

OVER AMBITIOUS PROJECTS COST THEM THIS DEBTS. EVERYONE KNOWS THAT UAE POPULATION CONSISTS EXPATRIATES POPULATION EXCEEDS THE LOCAL. I LIVED THEIR FOR MORE THAN 12 YEARS AND STILL REMEMBER THE DAY WHEN THEY CALLED ” DUBAI THE BRAND” AND THE DEVELOPMENT WAS PRACTICAL THOSE TIMES. THEIR POLICIES, RULES AND REGULATION EITHER FOR THE BUSINESS OR FOR THE EMPLOYMENT PURPOSE WERE KEEP CHANGING OFTEN AND NO STANDARDIZED RULES FORMED. SECONDLY, THE BUSINESS COMMUNITY EITHER IN LARGE SCALE, MEDIUM SCALE BUSINESS HOUSES (LEAVE ALONE SMALL SCALE) HAVE NO SCALED PLANS ABOUT THEIR BUSINESS. MOST OF EXPATRIATE POPULATION NOT EVEN SEMI PROFESSIIONALS AND HAVE HARDLY HABITUAL FOR CHANGES. I PERSONALLY FEEL THE COLLAPSE STARTED DURING 2005-06 AND BROADENED NOW.

Posted by Bala | Report as abusive
 

[...] Reuters Columns » Blog Archive » Stop the Dubai World, I want to … [...]

 

My intent is to ignore this kind of Media hysteria and simply move ahead with my investment plans. Grow up, Reuters.

Posted by A J Franks | Report as abusive
 

in my view, the dbai problem is being payed too much. Dubai will surely settle its debts. however it needs time to decide how to restructure. this may lead to selling of some non-core assets, especially overseas assets. abu dhabi will surely support dubai and so will saudi and other gulf countries. there is a lot of brotherhood in gulf countries. however, the sad part is that the americans are ignoring this aspect totally. they continue to take the world markets higher even thought the real economy is not in line with the expectations. i feel this is the next bubble building and americans are again responsible for it, just like what happened to the world after the lehmann crisis.

Posted by SANJEEV GARG | Report as abusive
 

Dubai simply built faster then there economy was growing. They tried to build a New York of the middleeast over night. “rome wasn’t build in a day” comes to mind.

 

A J Franks may not be as frisky when his investments go into the tank. Take heed to the losses at big boys like GM. Big losses in big business will eventually bring them down. No one is too big to fail. The Fed. cannot and will not bail out everyone.

Posted by Solomon | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/