Martin Lee @ Sg
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Dubai Debt Crisis

On Wednesday last week, two of Dubai’s biggest companies, Dubai World and Nakheel, asked creditors for a six-month delay in paying creditors on nearly US$60 billion of debt, out of which US$22 billion has to be refinanced by 2011. Technically, this is as good as a payment default of their debt.

Stock markets around the world reacted negatively following the news of Dubai’s debt crisis. A flight to safety from riskier assets could see an unwinding of the USD carry trade.

Dubai makes up one of the 7 Emirates of the United Arab Emirates (UAE). By itself, it has very few energy resources and relies heavily on one of its oil rich neighbor, Abu Dhabi, for funding.

Dubai The WorldThe past years have seen money pile into many infrastructure and construction projects like The World or Palm Jumeirah in Dubai. Following the global crisis last year, Dubai’s property market has been severely hit just like many other countries around the world. Dozens of major projects have been shelved.

Abu Dhabi had earlier lead a bailout of US$10 billion to Dubai in February this year.

The fact that Abu Dhabi has not come immediately to the aid of its sister Emirate Dubai raises concern and uncertainty although most analysts expect them to come to Dubai’s aid eventually. The impact of whatever aid they give to Dubai on other creditors remains to be seen.

The next important milestone to watch will be a US$3.52 billion bond due 14th December 2009 by Dubai World’s troubled real estate division, Nakheel. If Abu Dhabi does not come in with a rescue, the default will be a replay of the Argentina or Russia debt default.

Dennis Gartman, The Gartman Letter founder, on the Dubai Debt Crisis (video)

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6 comments
roachel says 9 years ago

DUBAI—-very,very boastful..hehehhehahahah…what a hell this?…Your Municipality is DEBT!!!..next time f you doesnt have enough capability..please dont do huh?, friendly advise only..

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joop says 9 years ago

Falcon Private Bank (formerly AIG Private Bank with a Singapore office) current owner is a Dubai Investment Company. Not sure if they are going to be affected.

Reply
Intheknow says 9 years ago

singapore and dubai totally different.

singapore does not rely on debt for funding purposes.

you see the IRs… not much government funding. mainly private investment.

the biggest government debt is CPF… and terms of repayment are dictated by big brother.. so….

Reply
    lioninvestor says 9 years ago

    Big brother dictates that the minimum we need to set aside before we can withdraw will increase every year. 🙁

    And part of the balance will eventually go to CPF Life, which does not even have a guaranteed minimum monthly payout.

    I suppose the run on CPF can only occur if everyone starts giving up the Singapore citizenship.

    Reply
VSL says 9 years ago

Hi LI,

After reading your article and watching the video, I see a number of glaring similarities between Dubai and S’pore.

Both are small states, have virtually no natural resources, have uber-ambitious plans (viz to make themselves global cosmopolitan cities, a financial hub of the region, a tourist hub, an airport hub, an expanding airline etc). Also, both states are overly reliant on “foreign talent”, have property prices sky-rocketing etc etc etc.

The main difference I see is that Dubai has been thriving on borrowed money, while sg has less int’l borowing and a huge foreign reserve. [Pls correct me if I am wrong here.]

With this possible difference in mind, do you feel that sg is also going down a slippery slope, though not as severely as in Dubai? Tks.

Reply
    lioninvestor says 9 years ago

    Hi VSL,

    Frankly speaking, I have not been tracking what is the current state of affairs of our foreign reserves. Certainly not those managed by Temasek and GIC. Also, Temasek has in the past couple of months tapped into the bond markets a few times.

    We are pretty much on our own as we do not have a rich oil brother to bail us out if things fail.

    One thing that has always been going for us is that we have been in a safe and strategic location.

    Reply
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