More like this
Is Dubai about to default on its $50bn debt?
Dubai World conglomerate owes billions and cannot find the money
Dubai could become an economic basket case on the level of the Icelandic disaster as the cost of insuring its astonishing sovereign debt skyrockets on investor fears the city-state may default on its debts.
Yesterday, to the considerable surprise of the financial world, Dubai announced it would restructure its largest corporate entity, Dubai World, a conglomerate spanning real-estate and ports, and announced a six-month standstill on the company's debt repayments.
It's been no secret that Dubai's Ozymandian dream of turning desert into a thriving city built on borrowing was in trouble. But government officials, led by Dubai's hereditary ruler Sheikh Mohammed bin Rashid Al Maktoum, had until yesterday offered assurances that it would pay its debts on time.
"This will destroy confidence in Dubai, the whole process has been so opaque and unfair to investors," Eckart Woertz, economist with Dubai's Gulf Research Centre, told the Financial Times.
Now with nearly $50bn in debt coming due over the next three years, Dubai's massive expansion in the late 90s and through the 00s may come to be seen as one of the greatest bubbles of the easy-money era. Nor is it likely that Dubai's oil-rich neighbours of the United Arab Emirates will step in to bail it out.
The vivid imagery of a desert nation that blooms as if in a dream and is quickly consumed again by the desert sands is hard to resist.
Dubai World was long the crown jewel of Dubai's economy, operating a globe-spanning ports and transportation group that includes P&O Ferries.
Its property division Nakheel built Dubai's iconic palm-tree-shaped island, packed with luxury villas (David Beckham has one) and hotels. It was through this company that western luxury retailers, decorators, people of fashion and entertainment, all made tracks to the city-state for a piece of the action or at least a pet sheikh for a generous lifestyle sponsor.
Now foreign creditors are already talking of legal action. Crucially, the standstill will effect a $3.5bn bond that Nakheel was scheduled to repay next month.
What happens next is open to question: Dubai's institutions are essentially closed now until December 6 for the Eid holiday but it looks like Dubai's dream of limitless expansion was built literally and metaphorically on sand. ·
Comments are now closed on this article
Comments
Always struck me as a preposterous strip of sand controlled by pretentious idiots. All those 'islands for the rich' will be underwater when the expected several metres of sea level rise happens. I do hope the fatuous, tasteless rich who were attracted to this monstrosity of bad taste are at home when the floods come, solve two problems in one go.
Never been there, never wanted to except perhaps out of curiosity. Everything I've heard makes me think it is a vile obscenity of a place stuffed full of the kind of people who like that. The problem can perhaps be solved by raising very high taxes from those who live there. Property taxes might be good to lower property values and force sales...at huge losses!