Dubai real estate investor asks for more time to pay 60 Billion with a "B" in debt Honestly, lets say conservatively that each skycraper costs a billion, how much real estate in Dubai does this represent. HONG KONG (AP) – The fallout from Dubai's debt crisis rippled across the globe Friday, raising concerns of another wave of financial turmoil and showing how vulnerable the world economy remains despite signs of recovery. As global stock, commodity and currency markets went into a tailspin, the possible spillover effects from Dubai surfaced from London to South Korea, with banks big and small drawing concern for any losses they could suffer as a result of their exposure to the massively debt-laden emirate. A year after the global slump derailed Dubai's explosive growth, the city-state's main investment arm, Dubai World, revealed this week it was asking for at least a six-month delay on paying back its $60 billion debt. Major credit agencies responded by slashing debt ratings on Dubai's state companies, saying they might consider the plan a default. In recent years, Dubai has expanded with ambitious, eye-catching projects like the Gulf's palm-shaped islands and the world's tallest skyscraper in hopes of becoming a tourist friendly and cosmopolitan Middle Eastern metropolis. In the process, however, the state-backed networks nicknamed Dubai Inc. have racked up $80 billion in red ink, and the emirate may now need another bailout from its oil-rich neighbor Abu Dhabi, the capital of the United Arab Emirates. Following a rout in Europe, Asia's stock markets tumbled Friday while the dollar hit a fresh 14-year low against the yen as investors piled into currencies perceived as safer. Crude oil at one point fell more than 6 percent. With Dubai World hard pressed to pay its bills, banks could take the biggest hit, analysts said. Heavyweight London-based lenders HSBC Holdings and Standard Chartered could face losses of $611 million and $177 million respectively, according to early estimates from analysts at Goldman Sachs. Both have substantial Middle East operations. In Asia, Japan's Sumitomo Mitsui Financial Group, the country's No. 3 bank, could be exposed to Dubai World's indebted property arm to the tune of several hundred million dollars, according to a person familiar with the matter. South Korea estimated the country's financial institutions have just $88 million exposure. Construction firms from Japan, Australia and South Korea behind Dubai's recent development boom also might be on the hook. While most have the wherewithal to absorb any losses, Dubai's troubles could lead banks to reevaluate and scale back their lending. That could make it more difficult for companies to borrow money and hold down a world economy still emerging from the throes of its deepest recession in decades, analysts said. Equally unsettling for investors was the uncertainty over which companies were exposed and how much money they might actually lose. European banks alone have $87 billion at risk in the U.A.E. "It touched investors' sensitive nerves," said Cai Junyi, an analyst for Shanghai Securities. "The world is watching whether that will have any substantial impact ... Dubai World is just like a small window that might reflect another financial tsunami.'' Emerging markets in the Middle East and elsewhere have attracted massive amounts of capital in recent years amid investor enthusiasm for regions with rapid economic growth. This year, financial markets in Asia and Latin America have vastly outperformed ones in the U.S. and Europe. But Dubai's woes could bring a temporary end to the promiscuous buying behind the boom, analysts said. "I think it will make investors realize they need to be more discriminating about emerging markets," said Arjuna Mahendran, head of Asian investment strategy at HSBC Private Bank in Singapore. "In the longer term we have no doubt that things are going to recover.'' HSBC declined to comment. Calls to Standard Chartered representatives were not returned. Among other companies with Dubai ties, South Korean construction firms have about 40 projects there whose remaining work is valued at as much as $3 billion. South Korea's government expected the problems to have minimal impact.
This article came out when this news was fresh, after some analysis most people in the know say that this is likely to be a blip on the radar screen. Dubai obviously overspent, but it's the model they chose to run with, everytime there will be a downturn it'll be impacted similarly. BUT they have the backing of big brother Abu Dhabi, which luckily for them has oil and money to spare. ... Having said that, Dubai's business model isn't all that bad, its not as though the city will go bust anytime soon. People are pissed rather on how they handled the disclosure of their troubles, having lived in the UAE I can see why the image conscious Arabs wanted to sweep this under the rug...horrible business practice.
If they were image concious, why didn't Abu Dhabi step in before they had to ask for more time. the next bubble around to pop is commercial real estate, dubai world isn't alone
Exactly - where there's smoke, there's fire. And remember, Abu Dhabi and Dubai are not exactly best buddies - there's a lot of resentment in Abu Dhabi about what is going on in Dubai. ChrisBosh is wrong in his characterization that Abu Dhabi is Dubai's "big brother".
Abu Dhabi wanted to teach them a lesson, there is a hidden rivalry between the two that doesn't get much press, the leaders(families) don't get along all that well. Havnt they been talking about the commercial real estate crisis for some time now...a little over blown or just delayed because of the bailouts?
I don't know how much you know about Arab culture or the history about the two ruling families in Dubai/Abu Dhabi ...you might know or understand it better than I do...why don't you explain to me why Abu Dhabi can't be chatacterized as Dubai's big brother. You always call people out yet never explain yourself...
Maybe the "King" should throw himself and his "royal" family in Debtors Prison!! This is another example of giving a child intellectually that has not earned their postion the ability to rule over a country. The fact that so many were duped by the aura is laughable. OOoooh the families don't like each other. Great way to run an allegedly modern economy. And the reason why there is no notice before something like this happens is because there is no market to represent current concerns until an issue is close to default. Dubai doesn't allow public marketable reits, and European banks don't have the aggressive mark to market rules (or Fed oversight to make sure its done) for these assets. So no one knows that somethings wrong till the interest payments stop. US MBS (Mortgage back securities) began declining in their market value well before the interest payments started coming up short and the defaults started. Thats the benefit of transparancy and not some individual person and his family running an economy. There is money to be made anywhere but the lack of risk management by investors in this capacity is disheartening. Wait for them to mess it up then we'll come in there buy it cheap and build it up. Then some grandson fool of this guy will complain that we're exploiting his people.
Considering the crappy state of our own economy, the mortgage crisis and our every growing debt I'm not sure we're in much of a position to be looking to exploit Dubai's collapse. That said I agree with a lot of your criticism.
He is right. It's not exactly a brotherly relationship. It's a long story, but anyone in Dubai/Abu Dhabi will tell you the same. However, Abu Dhabi knows that if Dubai collapses, no one will want to participate in Abu Dhabi's growth (shattered confidence). Dubai will not default on anything. They will simply do what they have always done - ignore everyone (including rating agencies) and do whatever the heck it takes to continue growing. Also, they have removed roughly all major decision makers from their positions. They know what they are doing and they are not afraid of making big decisions - one advantage of a non-democracy is you don't have to worry about the bureaucracy of removing people who have failed so clearly. Everything about Dubai is a hot topic these days, but it's all fog. It is a blip on the screen and I tell you this as a resident of Dubai. All the toxic waste has been removed and Dubai continues to push forward.
Arn't the families from the same tribe, I thought that relationship played a big role in Arab society. When I was in Abu Dhabi I heard a lot crap about each of the families b****ing at one another, but that didn`t mean they wouldn`t stand up for each other if needed. Then again this was back in late 90`s, Sheikh Zayed did a decent job on running things, don`t know what`s been going on since. BTW never admit to bigtexxx being right :grin:
They ultimately go back to the same tribe... but that's not saying much. Knowing your family tree in extreme detail is very common - lots of people go back to the same "tribe" eventually. Remember that bedouins are basically nomads or gypsies - this is why the Saudi and Kuwaiti royal family go back to the same tribe When Sheikh Zayed and Sheikh Rashid were around, the relationship was great. Officially, the relationship remains great. I'd rather not comment anymore . It's rude for me to talk about this so much with my only source of info being rumors.
Is there a sense of Schadenfreude from the more pious states for Dubai's relative secularism and consumerism? If there is one thing we know in Texas it is that for every Boom there is a corresponding Bust. Greedy latecomers will always overload the gravy train.
It's timing based, but not because of the bailout. It's a function of the type and term of debt on commercial properties and the type and term of the leases in those properties. There's a ton of commercial credit maturing over the next three years, on buildings that are now not even worth the current debt on the property (as profits have shrunk and valuations have deteriorated).
Which, again, means absolutely nothing as long as oil is well above $35. Basically, the United Arab Emirates is fine. The only risk is how much equity and influence will the federal government and Abu Dhabi take in Dubai. It's an internal, political, personal issue which only affects the 500k Emirati population. Everyone else is fine, everything else is overblown. Dubai will never default on anything.
[rquoter]The Dubai department of finance said last week it would request a standstill on all Dubai World’s debts, including a $4bn sukuk or Islamic bond payable on December 14. [/rquoter]ft dubai is saying it will default. the term 'request' is cute, but the fact is that dubai currently does not have the cash to live up to its obligations. if this 'request' is 'rejected' dubai will be in default. this is also a huge blow for islamic bonds. nice job on screwing islamic finance, dubai.
