First with Financial Comment from Arabia

Creditors of Dubai World remain mainly silent on $26bn debt

with one comment

Now that the Dubai Government has clarified its position on the Dubai World debt mountain, and explained that these loans have never carried a government guarantee, it would be good to hear from the bankers how they view the $26 billion debt suspension by government-owned Dubai World.

News that only $26 billion of the total $59-60 billion Dubai World debt is now suspended calmed global stock markets over night. A statement from Dubai World today said ‘constructive’ talks had started with creditors about liabilities to Nakheel and Limitless, its two real estate subsidiaries, and all its other companies were excluded.

Perhaps they loaned this money in the full knowledge that it was not guaranteed by the Dubai Government, or took an implicit guarantee for a explicit guarantee, or maybe they skipped the small print on multi-billion dollar disbursements. It would be good to know, and might help to alleviate the pressure on the Dubai Government, although that might be the only weapon that the bankers have.

Lenders at fault?

So who did the bankers think was borrowing the money? Independent companies with ambitious plans, or the government-owned ports authority looking to expand into real estate?

Well, now they have found out, if they did not already know. And who will they be negotiating with over these debts? Presumably the new Chief Restructuring Officer appointed by the owners, the Dubai Government, and to whom will he report?

In future bankers operating in Dubai are going to want to know exactly which public sector debts carry an explicit Dubai Government guarantee. An how many of the companies now owned by Dubai Government are actually independent and not going to get financial support in a crisis?

This might well entail some further restructuring of government-owned entities to clarify the situation. Otherwise the credit available to these companies is likely to be far more restricted than in the past. For if they have to stand on their own balance sheets, and not those of the government, then they will not be able to borrow as much.

Indeed, the unwinding of the $60 billion Dubai World debt mountain cuts to the heart of how Dubai has raised funds to finance its rapid expansion in recent years. It has captured worldwide interest, much to the embarrassment of all concerned.

Media attention

The Dubai Government would like the global media to shut up and to put its house in order behind closed doors. But financial markets are global and they come with their own media attached, and they will draw conclusions based on the accepted global best practice.

It is to global best practice that Dubai should look to solve its debt mountain, and appointing an administrator to restructure a part of Dubai World is just a start. But have the creditors really nothing more to say, apart from each bank downplaying its own exposure?


Written by Peter Cooper

December 1, 2009 at 7:19 am

One Response

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  1. Would you care to comment on the exclusion of Istithmar from re-structuring?

    Seems odd when both Barney’s and Almatis debt are in play!

    Ed Note: Yes it does seem odd.

    Rupert Neil Bumfrey

    December 1, 2009 at 9:58 am

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