Dubai bond default threat

27th Nov 2009 12:13

Dubai, the oil-rich Gulf state, caused a real stir this week with the threat of a debt default by Dubai World, one of the country's biggest companies.The state-owned firm said Dubai World and its subsidiary Nakheel, which built the famous tree-shaped Palm Islands, were seeking a debt standstill ahead of a restructuring.It's asked creditors if it can delay debt repayments due next month until May of next year.Most of the Emirate's $80bn debt pile, built up during a four-year construction frenzy, is held by Dubai World, and it seems Nakheel is having problems finding the cash to pay back a $4bn bond maturing on 14 December.Most thought there'd be no problem, given that it has the backing of Dubai World, the Dubai government and billionaire ruler Sheikh Mohammed bin Rashid Al Maktoum.As no one seems willing to step in and refinance the bond, the remainder of Dubai World's $56bn of liabilities are put at risk."The government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react," Sheikh Ahmed bin Saeed Al-Maktoum, chairman of the Supreme Fiscal Committee, said last night."We understand the concerns of the market and the creditors in particular. However, we have had to intervene because of the need to take decisive action to address its particular debt burden.""Like most global cities, Dubai has experienced its share of economic and social challenges in this global downturn. No market is immune from economic issues. This is a sensible business decision." The news sent global stock markets crashing, weaker currencies sharply lower and commodity prices south.British bank Royal Bank of Scotland is thought to have underwritten more loans to Dubai World than anyone else, about $2.3bn, according to JP Morgan.Analysts there say HSBC has the "largest absolute exposure" in the UAE, with $17bn of loans in 2008.