DUBAI: Government freezes debt repayments amid fears of global recession backlash
The chairman of Dubai's Supreme Fiscal Committee would like the world to know that despite overwhelming evidence to the contrary, everything is under control.
"Our intervention in Dubai World was carefully planned and reflects its specific financial position," said Sheikh Ahmed bin Saeed Al Maktoum, following Dubai's surprise announcement Wednesday that it would freeze its own debt repayments in order to restructure Dubai World, its biggest investment holding company.
"This is a sensible business decision," said Maktoum, adding that Dubai's economic fundamentals are sound and ensure it will remain an attractive regional market.
Dubai's creditors, along with most of the global banking and financial community, seem to disagree. Oil prices dropped and world markets suffered steep losses amid widespread fears that Dubai's latest financial woes could cause a global economic backslide just as many markets were showing signs of recovery. In the United States, Wall Street opened with sharp losses.
"You can't just say to the world: 'I don't want to pay my debts,' " David Buik, senior partner at BGC Partners, told the BBC. "There is no income coming in from any of these properties. I think this is shocking P.R."
The National newspaper, based in Abu Dhabi, reported that the worst hit banks included Credit Suisse Group, HSBC Holdings, Barclays, Lloyds Banking Group and Royal Bank of Scotland. Experts agree that even if Dubai manages to avoid defaulting on its debts, the damage to investor confidence will probably have far-reaching repercussions for the Persian Gulf boom-town.
Dubai World accounts for $60 billion of Dubai's estimated $80 billion in liabilities, although the United Arab Emirates as a whole and Dubai specifically have never disclosed details of their economies.
For months after the global financial crisis hit, Dubai claimed to be shielded from the worst of the recession only to have its real estate giant Nakheel bailed out by the neighboring emirate of Abu Dhabi months later. The details of that deal were not made public.
Now Dubai World, the holding company that includes Nakheel, appears to be in trouble. This time oil-rich Abu Dhabi has not stepped in. Rumors of a rift between the two emirates have been circulating for many months, leading Dubai's ruler Sheik Muhammad bin Rashid Al Maktoum to publicly reaffirm Abu Dhabi and Dubai's commitment to each other just a little over two weeks ago.
"We will be there for each other when we need it," he said at the time.
Dubai World was created in 2006 as an umbrella conglomerate for a number of state-controlled businesses, the most visible one being the port operator DP World, which became the center of a controversy in the U.S. after it acquired a company that controlled several American ports. DP World eventually sold it U.S. holdings, but continues to operate ports all over the world, including China, Lebanon, Russia, France, Canada, Saudi Arabia, India, and the United Kingdom.
-- Meris Lutz in Beirut
Photo: Dubai's ruler Sheikh Mohammad bin Rashid Al Maktoum has been known to boast of Dubai's prosperity even as investors and creditors complained of a lack of transparency. Credit: Alastair Grant / Associated Press