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An aerial view of The Palm Island Jumeirah in Dubai - Source: Reuters -
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Government-owned Dubai World will meet its main creditors next
week to discuss a request to delay payment on $US26 billion in debt
that has shaken global markets and confidence in the Gulf Arab
business hub.
Dubai's problems had raised fears of a renewed global crisis, but
there was little evidence of concern on the streets, where
thousands of balloons in the black, white, green and red of the
United Arab Emirates flag were released to mark the federation's
national day.
Next week's meeting would be Dubai World's first formal talks with
key lenders since the conglomerate that spearheaded the emirate's
rapid growth disclosed its debt woes on Novemebr 25.
An Abu Dhabi bank executive, who asked not to be named, said
London-listed Standard Chartered, HSBC, Lloyds and Royal Bank of
Scotland, along with local lenders Emirates NBD and Abu Dhabi
Commercial Bank were on the creditors' panel.
The banks did not immediately confirm their participation on the
committee but an Asian-based banking analyst said the six banks
were likely to be among those with greatest exposure to Dubai
World, which ran up its debts during a property boom that turned to
bust with the global financial crisis last year.
A source at a Dubai-based bank confirmed the makeup of the
panel.
Dubai World has asked creditors for a six-month standstill on the
debt of its property subsidiaries Limtless and Nakheel, developer
of three palm-shaped islands that once lured wealthy expatriates
and even celebrities.
The most urgent question is the fate of Nakheel's $US3.52 billion
Islamic bond, which matures on December 14.
British law firm Ashurst said it was named legal adviser to
Nakheel bondholders who account for 25% of the bond.
Dubai said the government would not guarantee the debts of Dubai
World, whose overall liabilities total almost $US60 billion,
including those of units not part of the restructuring.
The International Monetary Fund said that banks from Britain are
the most exposed to the conglomerate which was at the forefront of
Dubai's expansion plans and boasts the motto The Sun Never Sets on
Dubai World.
Dubai transformed itself from a sleepy desert backwater into the
trade and tourism hub of the world's biggest oil-exporting region
with sprawling malls, skycrapers and luxury villas that attracted
celebrities and the super-rich.
UAE markets, battered in the last two days, were shut for the
holiday, but Qatar's bourse surged nearly five percent after
plunging more than eight percent on Tuesday.
UAE officials have blamed foreign media for exaggerating the
crisis, ignored during national day festivities.
Black-clad women waved at a flag-draped flotilla in Dubai Creek,
the waterway on which Dubai first built its reputation as a
regional trading centre.
Wake-up call for investors
The Dubai debacle, which initially spooked global stock, debt and
currency markets, has exposed the frailties of quasi-sovereign
lending.
"Companies such as Dubai World can no longer be seen as having the
protection of their respective governments. This is true all over
the region and not just in Dubai," said Anshuman Jaswal, an analyst
with Celent, a Boston-based financial research and consulting
firm.
Foreign banks had lent to Dubai government-linked firms on the
implicit understanding that they were backed by the UAE - the
world's third largest oil exporter flush with cash from a six-year
boom in oil prices.
"Something that has irritated international investors is that the
government distanced itself from Dubai World, which legally
speaking is true, but morally speaking, they had gone out of their
way before to make that tie," one investor said.
Moody's said that possible multiple defaults related to Dubai
World's debt restructuring could lead to downgrades in UAE bank
ratings, but international banks exposed to the conglomerate are
unlikely to be affected.
The ratings agency estimated the Dubai government and its related
entities have debt of $US100 billion - higher than the market
estimate of around $US80 billion.
Adnan Yousif, chairman of the Union of Arab Banks, faulted Dubai
for mishandling initial communications with creditors and the
media, prompting an over-reaction by capital markets.
Dubai issued a five-paragraph statement last week just before a
four-day holiday, containing no details and leaving bankers and
investors scrambling for information.
It said only on Monday it would negotiate $US26 billion of debt
with lenders.
"They announced it, but they did not have an ad hoc committee to
communicate with both the creditors as well as the media. They left
everybody shocked," Yousif said.
He said Dubai should have sounded out creditors on their readiness
for restructuring talks before going public, but that the crisis
was unlikely to have a major impact on Gulf banks.
Bankers have said that banks in Abu Dhabi have an exposure to
Dubai-based firms of at least 30% of their loan books.
Fears of global contagion have eased, but Dubai's debt woes may
crimp the emirate's breakneck expansion - to the relief of some
outnumbered Emiratis alarmed by an influx of foreigners and their
liberal ways into the conservative Gulf Arab country.
"I don't have anything to lose in this financial crisis," said
Ebtisam al-Kitbi, a politics professor.
"As an activist and academic, I view it as an advantage for us as Emiratis."
