Dubai debt plea sends fear around world

[Oracle of Delphi]

Once one of the world's richest cities, emirate now can't pay its bills

DUBAI, United Arab Emirates - Just a year after the global downturn derailed Dubai's explosive growth, the city is now so swamped in debt that it's asking for a six-month reprieve on paying its bills — causing a drop on world markets Thursday and raising questions about Dubai's reputation as a magnet for international investment.

The fallout came swiftly and was felt globally after Wednesday's statement that Dubai's main development engine, Dubai World, would ask creditors for a "standstill" on paying back its $60 billion debt until at least May. The company's real estate arm, Nakheel — whose projects include the palm-shaped island in the Gulf — shoulders the bulk of money due to banks, investment houses and outside development contractors.

In total, the state-backed networks nicknamed Dubai Inc. are $80 billion in the red and the emirate needed a bailout earlier this year from its oil-rich neighbor Abu Dhabi, the capital of the United Arab Emirates.

Markets took the news badly — with the Dubai woes and the continued fall of the U.S. dollar giving investors twin worries. Dubai's move raised concerns about debt across the Gulf Region. Prices to insure debt from Abu Dhabi, Qatar, Saudi Arabia and Bahrain all rose by double-digit percentages Thursday, according to data from CMA DataVision.

In Europe, the FTSE 100, Germany's DAX and the CAC-40 in France opened sharply lower. Earlier in Asia, the Shanghai index sank 119.19 points, or 3.6 percent, in the biggest one-day fall since Aug. 31. Hong Kong's Hang Seng shed 1.8 percent to 22,210.41.

Wall Street was closed for the Thanksgiving holiday and most markets in the Middle East were silent because of a major Islamic feast.

"Dubai's standstill announcement ... was vague and it remains difficult to discern whether the call for a standstill will be voluntary," said a statement from the Eurasia Group, a Washington-based research group that assesses political and financial risk for foreign investors interested in Dubai.

"If it is not, Dubai World will be going into default and that will have more serious negative repercussions for Dubai's sovereign debt, Dubai World and market confidence in the UAE in general," the statement added.

Credit crunch

Dubai became the Gulf's biggest credit crunch victim a year ago. But its ruler, Sheik Mohammed bin Rashid Al-Maktoum, had continually dismissed concerns over the city-state's liquidity and claims it overreached during the good times.

When asked about the debt, he confidently assured reporters in a rare meeting two months ago that "we are all right" and "we are not worried," leaving details of a recovery plan — if such a plan exists — to everyone's guess.

Then, earlier this month, he told Dubai's critics to "shut up."

"He needs to produce a recovery plan that will be respected by those who want to do business with Dubai," said Simon Henderson, a Gulf and energy specialist at the Washington Institute for Near East Policy. "If he does not do it right, Dubai will be a sad place."

After months of denial that the economic downturn even touched the glitzy city-state, the Dubai government earlier this year showed signs of trying to deal with the financial fallout that has halted dozens of projects and touched off an exodus of expatriate workers.

In February, it raised $10 billion in a hastily arranged bond sale to the United Arab Emirates central bank, which is based in Abu Dhabi.

The deal — seen by many as Abu Dhabi's bailout of Dubai — was part of a $20 billion bond program to help Dubai meet its debt obligations.

On Wednesday, the Dubai Finance Department announced the emirate raised another $5 billion by selling bonds — all taken by two banks controlled by Abu Dhabi.

Abu Dhabi's ruling Al Nahyan family has been more conservative with its spending, investing oil profits into infrastructure, culture and state institutions. During Dubai's real estate bonanza, the Nahyans saw their flashy neighbor race ahead with development plans and tourism plans that had plenty of hype but few details on how they would be pulled off.

Some did materialize. The more than 2,600-foot Burj Dubai is scheduled to open in January as the world's tallest building. But many other projects, including a tower even taller than the Burj Dubai and satellite cities in the desert, are still just blueprints.

Story Continues: http://www.msnbc.msn.com/id/34165138/ns/business-world_business/

Edited November 27, 2009 by Oracle of Delphi

[eldiablobanshee]

80 billion ? How much did the US give fanny and freddy? With all the oil money over there this should be a baby bail out.

[Z-06]

80 billion ? How much did the US give fanny and freddy? With all the oil money over there this should be a baby bail out.

UAE's oil is depleting faster than US treasury's coffers. That is why they are trying to build Oasis, business districts, etc. It is turning to what it was before the oil rush - a sandy dune.

[A Horse With No Name]

Lets all hold hands and say it together kids, so we won't forget it. Peak oil is here...life will change at $6.00 a gallon....

Chris

[ZL-1]

80 billion ? How much did the US give fanny and freddy? With all the oil money over there this should be a baby bail out.

Dubai has virtually no oil left. The emirate with the big oil reserves is Abu Dhabi.

[Oracle of Delphi]

Dubai has virtually no oil left. The emirate with the big oil reserves is Abu Dhabi.

Looks to me like the Volt may hit showrooms just in time for another $100.00 per barrel crude oil spike in 2010.

[A Horse With No Name]

Yep. Sell that Tahoe now, guys and gals. It is going to get ugly. Real ugly.

Seems I am one of the few people here actually looking forward to the Volt.

Chris

[CSpec]

Peak oil? That's laughable. The world's proven reserves are the highest they've ever been and they continue to rise with new cheaper, more efficient drilling technologies.

I think what's more interesting about Dubai is the fact that they have debtor's prison, which has been exacerbated by the pop of their property bubble. There are stories of debt-ridden foreigners buying a one-way ticket out of there and abandoning their car at the airport.

[Drew Dowdell]

There is no such thing as "proven" oil reserves unless you're only counting what's already been pumped out of the ground and is sitting in a storage tank.

We may be better at finding it, but even that last "big" oil field find down in the Gulf of Mexico didn't even crack the top 20 operational oil fields in terms of size.

Even if you believe that oil comes from some magical fountain in Narnia, we should be researching other fuels so we can move some eggs out of this single basket they've been sitting in for about 100 years.