Friday, November 27, 2009

Dubai dodgy debt debacle deepens

The latest on the Dubai debt debacle, quickly developing into what could be the next phase in the global financial crisis:

Dubai -- self-styled bling capital of the Middle East, nightclub hotspot for the teetotalling Gulf and home to the world's tallest building and biggest mall -- has gone pear-shaped.

"It's gotten pretty ugly out there," analysts at Nomura Investment Banking wrote in a note this week, describing Dubai's property market as "a full-scale frenzy in which speculation went largely unchecked until it was very late."

The result may be a new business model for the emirate, one based less on debt and speculation.

Dubai's response is now being hammered out by a committee of business and government leaders charged with steering the emirate through the crisis and perhaps throwing its high-debt business model out the window.

Big developers have started firing staff and paring projects, banks like Emirates NBD ENBD.DU have blocked consumer credit to employees of companies at risk, and at least one major mortgage company has stopped lending altogether.

"Lenders blinded by rising oil prices and borrowers spellbound by easy returns have helped build a mountain of private sector debt in parts of the region that has generated an illusion of excess and abundance," Nomura said.

Now, investors fear that individuals and corporations alike will have trouble paying back Dubai's non-bank foreign currency debt estimated at just under $70 billion, according to estimates by ratings agency Fitch.

I usually try to avoid long quotes but in this instance thought it important to bring you up to speed on developments shaking world financial markets. Oh wait, that's not current news, it's from November 2008. Here's the latest:

The world's share markets are being shaken today by big debts held by the gulf state of Dubai.

The state-owned conglomerate Dubai World yesterday tried to delay the repayment of some of its borrowings.

In response, European stocks fell heavily overnight because European banks have big exposures to the company.

And today share markets have continued to plunge. The Australian share market closed almost 3 per cent lower.

Dubai was once the glittering crown of the Middle East. The gulf state is well known for its towering skyscrapers, wall-to-wall shopping centres and luxury hotels.

But that edifice could come crashing down.

State-owned company Dubai World has debts of more than $60 billion and yesterday tried to delay repayment on some of that debt.

Macquarie Private Wealth's Martin Lakos says doubts about Dubai's ability to pay its debts have come out of the blue, despite overbuilding in the economy in the past few years.

Out of the blue? You'd think with billions at stake the finance gurus would maybe pay attention to an ongoing problem. Oh well, it's not their money so why care?


Post a Comment

<< Home