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Monday deadline for $5.5bn Dubai bonds

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The $3.5 billion Nakheel bond that matures on Monday is a litmus test for the Dubai debt crisis which has destabilized local, regional and even global financial markets over the past two weeks, while a $2 billion bond from Dubai Electricity and Water Authority also falls due to an early repayment clause triggered by a debt downgrade.

Time is running out. Current market speculation is that Nakheel bond holders will be offered a deal involving a reduction in debt and extension of payment. That would leave Dubai World free to negotiate with its other long-term debt holders.

Dubai Holding debts

But the Dubai debt crisis took another turn late yesterday with an announcement from Emaar Properties that it is not proceeding with a proposed merger with Dubai Holding real estate companies. This points the focus onto debts at Dubai Holding which sources told the Financial Times amount to some $10 billion of which $2 billion mature next year.

The proposed merger with Emaar would presumably have involved the assumption of these liabilities, but that is not now going to happen.

Indeed, the fear of bad debts at state-related companies within the UAE has moved on to Abu Dhabi, with Moody’s saying it is considering a possible downgrade for Mubadala and the Tourism and Investment Company.

At the same time it emerged that the fall in Dubai’s credit ratings have triggered an early repayment clause in a $2 billion loan to the Dubai Electricity and Water Authority which does have a sovereign guarantee unlike the Dubai World companies Nakheel and Limitless.

Dubai Group, a part of Dubai Holding, yesterday sold a 6.5 per cent stake in EFG-Hermes for $120 million, reported the Financial Times, the first asset disposal since the Dubai World debt standstill announcement. On the same day Dubai World unit Istithmar lost control of the $282 million W Hotel in Manhattan for $2 million at a foreclosure auction.

All eyes will therefore be on the Monday bond announcements after another difficult week for Dubai business. But it will not be until all the dirty washing is hung out to dry that the crisis will be over.

Full disclosure

For only when the financial community is sure that it has a ‘true and fair’ view of the situation will the speculation and anxiety cease. The local newspapers have at least now started reporting these events which is a step forward in terms of transparency.

Will it all turn out to have been a sandstorm in a teacup? Veteran Dubai watchers certainly hope so but the battle over who owes what to whom, and who is going to pay is not over yet.

Nonetheless, Dubai continues to function as the only large container port in the region and it remains unchallenged as a regional trading hub, and thanks to Abu Dhabi the ultimate credit of the UAE is extremely solid indeed. Pimco is buying bonds issued by Abu Dhabi and Qatar which it feels are now too cheap.

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Written by Peter Cooper

December 10, 2009 at 10:08 am

One Response

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  1. “Istithmar lost control of the $282 million W Hotel in Manhattan for $2 million at a foreclosure auction”.

    Supposedly $212MM of debt were also assumed on top of the $2MM.

    Sam Dubai

    December 10, 2009 at 11:11 am


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