Sunday, November 29, 2009

Dubai World Misses a Debt Payment

Perhaps you thought all of the asset bubbles had burst last year. Not so.
Dubai World, an investment arm of the government of Dubai, which has been on a spending and building spree for years, missed a big payment to its creditors last week. The Economist reports that Dubai has already turned to its more conservative neighbor, Abu Dhabi, for funds:
It raised $10 billion from Abu Dhabi, its wealthier neighbour, in February. And hours before it requested a standstill, it said it had raised another $5 billion from two Abu Dhabi banks, although only a portion of that was available immediately.
These bail-out funds flow to the Dubai Financial Support Fund, a committee which is overseeing the restructuring of Dubai’s indebted companies. It is described by one banker as a “command-and-control cockpit”, imposing some financial discipline on Dubai’s government-backed champions.
Dubai and Abu Dhabi are members states of the United Arab Emirates, which rely on one central bank. The bank is moving cautiously, and rather cryptically, to restore confidence in Dubai:
The United Arab Emirates’ central bank issued a statement on Sunday saying that it would stand behind foreign and domestic banks operating in the emirates. It did not mention Dubai World, the investment arm of the Dubai government, which is $59 billion in debt.
The statement does not specify how Abu Dhabi and the other emirates plan to shore up, and clean up, Dubai World.


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