Dubai seeks debt repayment delay
By Matt Smith and Enjy Kiwan |
November 27, 2009, Friday
|
Print Edition
Print Edition
DUBAI said on Wednesday two of its flagship firms planned to delay repayment on billions of dollars of debt as a first step toward restructuring Dubai World, the conglomerate that spearheaded the emirate's breakneck growth.
The sudden move by the Gulf government led Standard & Poor's and Moody's Investors Service to deeply downgrade several government-related entities. Moody's slashed some units to junk status and S&P said the restructuring could be considered a default.
The government's announcement, which said consultants Deloitte had been appointed to help with the restructuring, sent the cost of insuring Dubai's debt against default soaring and bond prices tumbling.
State-run Dubai World has US$59 billion of debt, its unit Nakheel said in August, a large part of Dubai's total debt of US$80 billion.
Analysts expect financial support from deep-pocketed Abu Dhabi, a neighboring member of the United Arab Emirates, to keep Dubai afloat. But Dubai will likely have to abandon a flamboyant economic model that focused on heavy real estate investment and foreign capital.
"It's shocking because for the past few months the news coming out has given investors comfort that Dubai would probably be able to meet its debt obligations, and most analysts were of the view that Nakheel's commitments would be met," said Shakeel Sarwar, head of asset management at SICO Investment Bank.
The government said in a statement: "Dubai World intends to ask all providers of financing to Dubai World and Nakheel to 'standstill' and extend maturities until at least May 30, 2010."
The sudden move by the Gulf government led Standard & Poor's and Moody's Investors Service to deeply downgrade several government-related entities. Moody's slashed some units to junk status and S&P said the restructuring could be considered a default.
The government's announcement, which said consultants Deloitte had been appointed to help with the restructuring, sent the cost of insuring Dubai's debt against default soaring and bond prices tumbling.
State-run Dubai World has US$59 billion of debt, its unit Nakheel said in August, a large part of Dubai's total debt of US$80 billion.
Analysts expect financial support from deep-pocketed Abu Dhabi, a neighboring member of the United Arab Emirates, to keep Dubai afloat. But Dubai will likely have to abandon a flamboyant economic model that focused on heavy real estate investment and foreign capital.
"It's shocking because for the past few months the news coming out has given investors comfort that Dubai would probably be able to meet its debt obligations, and most analysts were of the view that Nakheel's commitments would be met," said Shakeel Sarwar, head of asset management at SICO Investment Bank.
The government said in a statement: "Dubai World intends to ask all providers of financing to Dubai World and Nakheel to 'standstill' and extend maturities until at least May 30, 2010."
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