Investors in Dubai were given an early chance to get into the spirit of things. The emirate’s government asked creditors of Dubai World, one of three big government-backed conglomerates, to agree to a standstill on repayments until May 30th 2010 at the earliest.
Dubai’s debts are heavy, amounting to about $80 billion including the government and the conglomerates it controls. Investors had half-expected Dubai World to seek forbearance from its bankers, asking them to extend their loans. But they felt sure the emirate would make good on publicly traded instruments, and in particular Nakheel’s sukuk (Islamic bond), rather than suffer further damage to its financial reputation.
Credit-rating agencies quickly downgraded all government-related debt. Whether the standstill counts as a default depends on whether Dubai is asking investors to defer their claims or telling them to. If push comes to shove, the emirate surely has the means to satisfy many of them. It raised $10 billion from Abu Dhabi, its wealthier neighbour, in February. And hours before it requested a standstill, it said it had raised another $5 billion from two Abu Dhabi banks, although only a portion of that was available immediately.
These bail-out funds flow to the Dubai Financial Support Fund, a committee which is overseeing the restructuring of Dubai’s indebted companies. Dubai has to borrow to finance its future. As the recovery takes hold, it will make money again from its property, tourism, trade and financial industries.
(From The Economist)
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