Property developer Nakheel was due to pay off nearly $3.5bn in bonds in December [EPA]
Debt problems in Dubai have shaken investors and put pressure on banking shares around the world as fears grow of a credit default.
European stocks fell to lows not seen since May and bonds jumped on Thursday after Dubai announced plans to restructure the debt of Dubai World, the state-owned conglomerate that has spearheaded the emirate's growth.
"This is a default in everything but name," Andrew Critchlow, managing director of Dow Jones Middle East, told Al Jazeera.
"No one expected this. People were expecting that Dubai was starting to climb out of its economic crisis and overcome the downturn we've seen globally."
The cost of insuring Dubai's debt surged on Thursday following the government's announcement.
Dubai's five-year credit default swaps - the insurance against its credit risk - rose to almost 470 basis points, a rise of 30 base points on the previous session's close, CMA Datavision, a London-based market analysis group, said.
"Dubai isn't doing risk appetite any favours at all and the markets remain in a vulnerable state of mind," Russell Jones, the head of fixed-income and currency research in London at RBC Capital Markets, told Bloomberg.com.
"We're still in an environment where we're vulnerable to financial shocks of any sort and this is one of those," he said.
Debt 'standstill'
The government of Dubai said on Wednesday that it would ask Dubai World's creditors to accept a moratorium on debt worth billions of dollars.
The move is part of a plan to restructure the state-run company and its property developer subsidiary Nakheel.
"Dubai World intends to ask all providers of financing to Dubai World and Nakheel to a 'standstill' and extend maturities until at least 30 May 2010," a statement issued by the Dubai Financial Support Fund said.
Nakheel, the developer of the emirate's palm-shaped residential islands, was due to pay off nearly $3.5bn in maturing Islamic bonds in December.
Nakheel is responsible for the construction of the artificial island of Palm Jumeriah [AFP]
Critchlow told Al Jazeera: "There were signs of a bounce-back in the property market. Trade and tourism were starting to bubble again.
"So this has surprised the entire business community and no one more than international banks who stand to potentially lose billions here."
John Sfakianakis, chief economist at Saudi Fransi bank, said: "It might be a move to distinguish the solvent from less solvent companies in an attempt to shift the weight away from the less exposed entities.
"[But] that doesn't entirely allay market concerns but it could signal the beginning of a restructuring and re-categorisation process."
Dubai has external debts of around $80bn, of which Dubai World, one of the emirate's biggest holding companies, owns around three quarters.
The emirate is now considered the sixth most likely government worldwide to default on its loans, according to CMA Datavision, putting it just below Latvia and Iceland.
"It appears Dubai World will be broken apart," Critchlow said. "It is essentially two stories - the good and the bad - DP World on the one hand ... and then its other subsidiaries."
Restructuring priority
The Dubai government said on Thursday DP World, an international port operator, and its debt would not be part of the restructuring of Dubai World on Thursday.
Dubai World had been trying to persuade bank creditors to restructure up to $12bn of its loans.
The company, which owns Barneys New York, hired an advisory firm in August to help it explore options to shore up the US luxury chain's financial position.
The emirate accumulated its debt as it expanded in the banking and real-estate sectors before the global financial crisis dried up available financing.
Restructuring its government-linked debts is now a top priority as the government seeks to assure a rebound for its trade, tourism and services-focused economy and recover from the precipitous property crash.
http://english.aljazeera.net/business/2009/11/20091126103029690634.html
Debt problems in Dubai have shaken investors and put pressure on banking shares around the world as fears grow of a credit default.
European stocks fell to lows not seen since May and bonds jumped on Thursday after Dubai announced plans to restructure the debt of Dubai World, the state-owned conglomerate that has spearheaded the emirate's growth.
"This is a default in everything but name," Andrew Critchlow, managing director of Dow Jones Middle East, told Al Jazeera.
"No one expected this. People were expecting that Dubai was starting to climb out of its economic crisis and overcome the downturn we've seen globally."
The cost of insuring Dubai's debt surged on Thursday following the government's announcement.
Dubai's five-year credit default swaps - the insurance against its credit risk - rose to almost 470 basis points, a rise of 30 base points on the previous session's close, CMA Datavision, a London-based market analysis group, said.
"Dubai isn't doing risk appetite any favours at all and the markets remain in a vulnerable state of mind," Russell Jones, the head of fixed-income and currency research in London at RBC Capital Markets, told Bloomberg.com.
"We're still in an environment where we're vulnerable to financial shocks of any sort and this is one of those," he said.
Debt 'standstill'
The government of Dubai said on Wednesday that it would ask Dubai World's creditors to accept a moratorium on debt worth billions of dollars.
The move is part of a plan to restructure the state-run company and its property developer subsidiary Nakheel.
"Dubai World intends to ask all providers of financing to Dubai World and Nakheel to a 'standstill' and extend maturities until at least 30 May 2010," a statement issued by the Dubai Financial Support Fund said.
Nakheel, the developer of the emirate's palm-shaped residential islands, was due to pay off nearly $3.5bn in maturing Islamic bonds in December.
Nakheel is responsible for the construction of the artificial island of Palm Jumeriah [AFP]
Critchlow told Al Jazeera: "There were signs of a bounce-back in the property market. Trade and tourism were starting to bubble again.
"So this has surprised the entire business community and no one more than international banks who stand to potentially lose billions here."
John Sfakianakis, chief economist at Saudi Fransi bank, said: "It might be a move to distinguish the solvent from less solvent companies in an attempt to shift the weight away from the less exposed entities.
"[But] that doesn't entirely allay market concerns but it could signal the beginning of a restructuring and re-categorisation process."
Dubai has external debts of around $80bn, of which Dubai World, one of the emirate's biggest holding companies, owns around three quarters.
The emirate is now considered the sixth most likely government worldwide to default on its loans, according to CMA Datavision, putting it just below Latvia and Iceland.
"It appears Dubai World will be broken apart," Critchlow said. "It is essentially two stories - the good and the bad - DP World on the one hand ... and then its other subsidiaries."
Restructuring priority
The Dubai government said on Thursday DP World, an international port operator, and its debt would not be part of the restructuring of Dubai World on Thursday.
Dubai World had been trying to persuade bank creditors to restructure up to $12bn of its loans.
The company, which owns Barneys New York, hired an advisory firm in August to help it explore options to shore up the US luxury chain's financial position.
The emirate accumulated its debt as it expanded in the banking and real-estate sectors before the global financial crisis dried up available financing.
Restructuring its government-linked debts is now a top priority as the government seeks to assure a rebound for its trade, tourism and services-focused economy and recover from the precipitous property crash.
http://english.aljazeera.net/business/2009/11/20091126103029690634.html
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