Dubai (in Arabic: دبيّ‎, Dubayy) is one of the seven emirates and the most populous state of the United Arab Emirates (UAE). Dubai in deep water as ripples from debt crisis spread,dubai financial crisis

Lehman,  followed by Dubai?THE SANDS AND THE FURY

Britain's "Financial Times" Lex 2009-11-27
Argentina's default in 2001 didn't come out of the blue. Nor did Lehman's collapse. Yet both caused shockwaves. Now it may be Dubai's turn. Investors fear that a debt standstill by Dubai World, the city kingdom's largest state-owned conglomerate, is a prelude to a forced restructuring of its estimated $60bn of liabilities. This has caused a repricing of risk both in and beyond the Gulf. Bank share prices took a pummelling yesterday. HSBC, down 5 per cent, was among the worst hit, given its estimated $16bn exposure to the United Arab Emirates. The dollar and bunds rose.

But is it all such a big surprise? From the Tower of Babel to Kuala Lumpur's Petronas Tower, an uncanny historical correlation exists between building height and hubris. And at 810 metres, the Burj Dubai, due to be completed next year, will be the tallest building in the world.

What may have surprised investors is Dubai's relatively weak debt payment abilities. With a gross domestic product of about $75bn, the emirate's state-owned companies must repay some $22bn of bonds before the end of 2011. Yet Dubai also has a liberal tax regime, small hydrocarbon revenues and a persistent fiscal deficit. Future funds will therefore have to come through asset sales, new debt issuance or support from its richer UAE neighbour, Abu Dhabi. Sitting on the world's largest sovereign wealth fund, with $630bn of assets, it is not a question of can Abu Dhabi help, but will it – and for which assets and on what terms?

If the worst comes to the worst, foreign creditors could face a rough ride. Local rules are generally unfriendly to creditors. The nature of Islamic sukuk bonds may be another complication. Working for investors is the reputational damage that the UAE's ruling royal families may face. Lenders today have less incentive to accept punitive or involuntary restructurings as they can call in their credit insurance instead. Any sign of Gulf brinkmanship therefore makes default more, rather than less, likely.

DUBAI

dubai financial crisis,dubai crisisLex 2009-11-26

Dubai's hopes of becoming a world financial centre are proving to be nothing more than an Ozymandian dream. Yesterday's unexpected decision by Dubai World, the Gulf emirate's largest state-owned conglomerate, to impose a six-month debt standstill has foreign creditors up in arms. Earlier this month, Dubai's ruler Sheikh Mohammed Bin Rashid Al Maktoum publicly pledged his support for the group and its obligations. Investors, perhaps foolishly, took him at his word.

The consequences of the standstill, and possible eventual default, are far-ranging. The repayment of Dubai World's $4bn Nakheel bond was seen as a litmus test for the emirate's ability to deal with the $80bn owed by the sovereign and its state-controlled companies. The emirate's willingness to do this is now in doubt, especially as only an hour earlier it raised $5bn from two state-controlled banks in Abu Dhabi. This was only half what had been expected, but followed $10bn of earlier support from the kingdom's richer neighbour. Foreign creditors are muttering darkly about taking legal action. Credit default swaps on Dubai's sovereign debt have exploded to levels higher even than Iceland's, according to CMA Datavision.

Dubai's huge infrastructure projects and palm-shaped tourist resorts were long ago revealed to have been a boom-time rush built, literally, on foundations of sand. It is possible the debt standstill is a trial balloon floated to gauge investor reaction to a voluntary restructuring of Dubai World's debts. Eventually, the group could be split in two: a “good” Dubai World with all the productive assets, and a “bad” Dubai World with the rest. The confusion ahead of a four-day holiday is such that some conspiracy theorists even believe the move was somehow foisted on Dubai by Abu Dhabi, tightening the purse-strings on the upstart kingdom. If so, the United Arab Emirates will have chopped off its nose to spite its face.