Dubai World Collapse Sends a Tremor Through the Financial Markets

Read this article, Dubai heat felt around the world to get the latest information,

“THE tip is that the company that led Dubai’s spectacular growth, Dubai World, will be bailed out of its financial strife by black gold, with the richest member of the United Arab Emirates, Abu Dhabi, writing the cheque. Let’s hope it happens, because a Dubai World collapse would send shock waves around the globe, not least in Australia.”

Dubai World has apparently collapsed with $59Bn of debt. It is asset rich but cash poor. It has approximately $99Bn in assets according to the papers. And it is basically government-owned and should not have a problem should it?

“It was well known that the emirate’s speculative property boom had busted, but the markets were not expecting its key state-controlled company to seek a debt moratorium.”

“Dubai property prices are down about 50 per cent since the global crisis erupted.”

Only a year ago….  in an article, “Dubai discloses details to assuage fears” we were told,

The Government of Dubai has moved to protect its economy from a looming crisis of confidence by disclosing details of its previously secretive finances, merging and nationalising financial groups and putting the brakes on its property market.

Further ….

Dubai’s GDP was 198 billion United Arab Emirates dirhams (£35.6billion), which means that the ratio of its debt to gross domestic product is 148 per cent, compared with 57 per cent in the United States, 40 per cent in Britain and 99 per cent in Japan. It equates to a per capita debt of about $40,000 per head if split among Dubai’s two million population.”

And just so you know….

“Mr Alabbar’s Emaar, a member of Dubai’s executive council and chairman of Emaar Properties which is building the Burj Dubai, the world’s tallest building, will collaborate with Nakheel, which built the palm islands off the Dubai coast, and Dubai Holdings, the Government’s property unit. The three companies control 70 per cent of Dubai’s property development industry, but will be allowed to work together to limit supply and prevent the market from being flooded with new apartments.

Mr Alabbar said: “We have to recognise the reality on the ground and work differently. We have to collaborate and in time, in the future, we can be competitors again.””

So it seems yet again government and business are in bed together and when it all collapses someone else has to bail them out. It seems only right and proper in these times of “too big to fail” that when this happens competition should be suspended until these companies are back on their feet again.

So a year later Dubai World collapses with $59Bn worth of debt. That was well managed.

This is just the tip of the iceberg of what has been going on around the world I am sure. If Abu Dhabi doesn’t write the cheque to bail out Dubai World it will send out shock waves around the world. And of course it is the usual suspects that are likely to get hit by those shock waves according to the article,  “Dubai World May Sell Bonds to Repay Maturing Sukuk, Bankers Say“,

“Dubai World and its advisers are negotiating with its lenders, which number more than 70 and include Abu Dhabi Commercial Bank PJSC and Emirates NBD PJSC, its two biggest creditors, a person familiar with the situation said last week. Other lenders to Dubai World include Credit Suisse Group AG, HSBC Holdings PLC, Barclays PLC, Lloyds Banking Group PLC and Royal Bank of Scotland Group PLC, the person said.
Representatives of Emirates NBD, HSBC, Credit Suisse, RBS and Lloyds declined to comment. Representatives for Abu Dhabi Commercial Bank and Barclays weren’t available to comment.”

Many of these Banks are virtually nationalised by their respective governments so do you see what I see – another bailout to cover their losses if Abu Dhabi World goes into total melt-down maybe? But more importantly are there any more ADW’s out there about to fail?

Just recently, “RBS And Lloyds Get Staggering $51 Billion Second Bailout From UK Government“.

As the article writer Joe Weisenthal says in his opening statement, “What you’re hearing is the sound of UK taxpayers vomiting.” That goes for the rest of us too.

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