Dubai can’t rely on friendly creditors
– Neil Unmack is a Reuters columnist. The opinions expressed are his own –
Whether a “careful plan” or strategic blunder, Dubai’s request for a debt standstill for its Dubai World holding company has rattled lenders who were counting on government support.
It will now struggle to contain the fallout for other Dubai-owned entities.
In the case of Dubai World, banks and other creditors have the option of rejecting the standstill and trying to enforce security over the holding company’s assets — which include the QE2 cruise liner and port operator DP World. But the legal process will be drawn out and recovery values unpredictable. International creditors may struggle to persuade local banks to reject the standstill.
That would suggest an out of court restructuring is more likely, and that banks will push for the best terms they can get.
Much will depend on how the proposed standstill is structured, which is still not certain. Lenders may be unwilling to sign to an agreement that forces them to defer interest, because that would make it more likely that they will have to take additional bad debt provisions before the end of the year.
But while the banks may be prepared to take some pain or extend their debt, they will want something in return from Dubai and its wealthier neighbours. It’s not clear, however, how much Abu Dhabi is prepared to give to Dubai’s creditors.
Dubai must recover investor faith
– Neil Unmack is a Reuters columnist. The opinions expressed are his own —
Some kind of debt restructuring was inevitable for Dubai’s myriad overleveraged borrowers, but the emirate’s decision not to support property developer Nakheel and seek a debt standstill for holding company Dubai World has devastated its standing in financial markets. Dubai’s future and ability to attract much-needed external capital will depend on how it handles the fallout.
It is rare to see a company announce plans to launch a bond on the same day it threatens creditors to one of its main businesses with potential default. That’s what Dubai just did, when it asked creditors of flagship holding company Dubai World and property developer Nakheel, owned by Dubai World, for a debt standstill until next May on the same day it announced plans to sell a bond for its electricity and water authority.
This muddle suggests Dubai has underestimated how much international markets’ view of its own standing would be contaminated by the standstill. Yesterday’s bombshell followed weeks of rapprochement between Dubai and international markets, culminating in the government’s recent sale of an Islamic-compliant bond. That goodwill is now lost.
Supporting property developer Nakheel may have been unpalatable, but the way the news was announced — on the eve of the Eid holiday — is hugely damaging for other government-related entities and Dubai itself.
Dubai and its related companies have about $90 billion of debt, of which $20 billion falls due over the next year, according to Barclays Capital estimates. All of Dubai’s entities will be tarnished. That is why DP World, the profitable port operator, quickly moved to assure creditors that it was not subject to the standstill.
Much depends on how the big banks that have lent to Dubai and its various entities now respond. If they withdraw credit lines and demand repayment on outstanding debt, the whole leveraged edifice could collapse.
Most commentators don’t understand the culture so they worry to death, Abu Dhabi and other GCC countries will not allow Dubai to lose face and credibility, it is about leadership, ordinary families bail-out their kin and this will be the same but here the fraternity is the leaders and they are joined at the hip, Relax
Dubai will pay for Abu Dhabi aid
– Alexander Smith is a Reuters columnist. The opinions expressed are his own —
Abu Dhabi is not going to crow publicly over Dubai’s troubles. But it will use the opportunity to assert control over its upstart neighbor. The price for Abu Dhabi’s help could be prize assets like airline Emirates. Dubai has little choice but to do what it is told.
Dubai is unable to service the $80 billion debt it has amassed during its meteoric rise to wannabe global financial hub. Oil-rich Abu Dhabi holds the political and financial trump cards. Not only is it the capital of the United Arab Emirates, its ruler is head of the UAE’s seven desert states — squeezed between Saudi Arabia and Oman.
Dubai’s success threatened the balance of power between the two emirates. Abu Dhabi has developed quickly, but not at the speed of Dubai, where until a year ago new skyscrapers popped out of the desert every few days.
A property market crash and the end of free-flowing credit have taken their toll. Abu Dhabi has already lent Dubai at least $10 billion and another $5 billion indirectly via two of its banks. That won’t be the end of it. Dubai has nowhere else to turn, particularly now it has alienated the international capital markets by admitting it can’t meet the debts of flagship holding company Dubai World. Abu Dhabi can afford to bail out Dubai, but it has not been immune to losses itself and won’t be signing blank checks.
Abu Dhabi won’t want to see its neighbor sink — after all they belong to the same country. But it will feel Dubai needs to be taught a lesson.
One particularly painful punishment would be to force Dubai to hand over control of its prized Emirates Airline through a merger with Abu Dhabi carrier Etihad Airways. Global ports operator DP World is another asset Abu Dhabi should think about laying its hands on. Indeed, ownership of such assets may already have changed hands without anyone other than the royal families knowing about it.
The Dubai news is shocking since it is part of the oil-rich Middle East.This shows that mismanagement of finance is a recipe for disaster. This principle applies to government and residents alike.If this can happen to Dubai, this can happen to any country. Hopefully US government can learn a lesson, and work hard to reduce its debt.
With all the Dubai bashing that has been occurring over the last few weeks, people have lost sight of the fact that the debt overload was not one-sided. The commercial banks were happily and greedily lining up to lend Dubai all of the funds as well. All of the $58 billion or so loans made to Dubai World were done so without any government guarantee, so why are the banks and investors upset that the government will not bail them out? When things were going well in Dubai over the last few years, were these banks sharing their record profits with the government?
All of the loans that were made were done so on commercial terms. The credit guys at the banks reviewed the financials, and indpendantly decided that each of the Dubai companies was worthy of massive amounts of credit. As such, these same credit analysts are to blame for the losses that their banks will incur.