Tuesday, December 01, 2009

Dubai Debt

DUBAI, United Arab Emirates – If global investors were looking for reassurances from Dubai that it would stand behind its massive, debt-swamped investment conglomerate, they got none Monday. Instead, the Gulf city-state seemed to wash its hands of the financial woes that have rattled world markets.


'Shocking'

The Dubai government said in a statement that the request to delay debt repayments also applied to property developer Nakheel, a Dubai World subsidiary.

"It's shocking because for the past few months the news coming out has given investors comfort that Dubai would most probably be able to meet its debt obligations," said analyst Shakeel Sarwar, of SICO Investment Bank.

Dubai is one of the seven self-governing emirates or states that make up the United Arab Emirates.

Analysts say the Dubai government has paid the price for a flamboyant economic model centred on foreign capital and giant construction projects.

Questions are now being raised about Dubai's ability to repay its debts, said the BBC's Middle East correspondent Jeremy Howell.

Some have speculated it is likely to turn to the more economically conservative Abu Dhabi emirate to bail it out.

Global credit rating agency Standard & Poor's, which rules on a company's or government's ability to repay its debts, said the announcement "may be considered a [debt] default".

Our correspondent said: "Standard & Poor's and Moodys immediately downgraded all six state-backed corporations in Dubai, downgrading some to junk status."

Junk is the term commonly used to describe bonds that are rated below investment grade by ratings agencies.

The Dubai World announcement was made on the eve of the Eid al-Adha Muslim festival, which will see many government agencies and companies close in Dubai until 6 December.


courtersy of BBC News


1 comment:

ceslou said...

debt restructuring is common on big companies. If USA will not support ailing GMC or Ford , does the world give a damn? So many people exaggerate and want to see the downfall of Dubai however I personally believe that Dubai will get through with this and will come out stronger.

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