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Dubai debt: the pressure mounts
With the emirate’s total obligations now in excess of $100 billion, the UK’s Business Secretary Lord Mandelson says ‘time is running out’ for a restructuring plan.
February 15, 2010 11:52 by Ben Flanagan
Will Dubai World go into administration? Will Nakheel? Will Dubai pay back 60 percent of its debts, all of it – or none of it? There are so many unanswered questions concerning how troubled conglomerate Dubai Would will repay its $22 billion debt, not to mention how the emirate’s total obligations of more than $100 billion will be met.
With this in mind, it is not surprising that local markets react strongly when any apparently credible information is released.
Yesterday, the Dubai Financial Market index tumbled by 3.5 percent, its biggest drop in three weeks, on the back of news that Dubai World may only repay 60 percent of its $22 billion debt.
The report by Zawya Dow Jones said that Dubai World is expected to offer creditors a 60 percent repayment after seven years, with a sovereign guarantee in place but no interest. Another offer of a 100 percent payment, but with no sovereign guarantee, is also on the table, according to the report.
This news agitated the already jittery financial markets, with real estate stocks in Dubai hit the hardest. Flagship developer Emaar Properties, for example, yesterday shed 5.88 percent of its value.
But the two offers outlined in the Zawya Dow Jones report are by no means concrete. A Dubai World spokesperson tells Kippreport: “The offer that has been reported is speculative, and should be treated as such”.
Any offer would have to go through the Dubai government – and probably Abu Dhabi officials as well. This means that any proposal under discussion now is by no means final.
Still, Dubai is certainly coming under increasing pressure to restructure its debt quickly, and with transparency.
Yesterday the UK’s Business Secretary Lord Mandelson was in Dubai to discuss the estimated $2 billion owed by Dubai government-linked firms to British contractors.
“Time is running out. The current uncertainty and the lack of agreement cannot go on indefinitely,” said Mandelson. “Dubai has to be conscious of the fact that how it resolves its current problems will mean a great deal for the Dubai brand, its reputation and how it secures investment from overseas in the future.”
“The current uncertainty on a lack of agreement cannot go on indefinitely, even for much longer. Therefore, [Dubai] has to tread carefully, it has to tread openly, it mustn’t tread for too long and it does need to reach an agreement with its creditors that everyone can say is demonstrably fair to those who have invested their money, undertaken jobs, done well for Dubai and require Dubai to act fairly to them.”
It is not just UK contractors who are awaiting payment. According to a report in the Japanese newspaper Nikkei in January, a consortium of four Japanese contractors and one Turkish firm threatened to suspend construction of the Dubai Metro, due to a delay in payment by the Dubai government.
Despite these wider claims, the $22 billion owed by Dubai World is seen as the most pressing. And the offer presented to creditors by the end of March – whatever it will entail – will be key to the how the financial community sees Dubai in the future.