Thursday, November 26, 2009

Dubai's Debt Binge

Dubai World  the builder of the Palm Jumeirah has asked for a standstill agreement on it's debt. The debt--$59 billion--by it and its subsidiary Nakheel is now teetering on default.

Here's how things look from a helicopter.

And here's how they look from a ground level.

$59 billion of sub-prime real estate in the middle of a desert--with money lent by the prime banks!

Goldman Sachs was the mandated lead arranger on the $5.5 billion Dubai World term loan in June of 2008, but of course, they had no exposure!

But the question remains--Is Dubai the UAE's Lehman?


Anonymous said...

How will this affect us tomorrow and going forward? Does it give the bears a case now?


Anonymous said...

Oil is going to get slammed hard since these Arabs are going to need liquidity... but that's assuming they have spare capacity!

Anonymous said...

Dubai is the second largest emirate in the U.A.E. The largest (the capital) Abu Dhabi is home to 8% of the worlds oil.. do you know what 59 billion is to these guys? People seem to forget that they are the same country..

The media are making a meal out of this IMO. It will be forgotten in a week.

friendly ayraab said...

I kind of agree with the 3rd anonymous.
A few things I'd like to say here:
1. Dubai virtually has no hydrocarbon revenue worth mentioning anymore.
2. The Dubai government-affiliated company in question DP World or Dubai World or whatever it is with "World" in its name, has asked for a 6 month delay in payment on just 4 to 5 billion dollars of the islamic bond issue.(not the 59 to 120 billion of outstanding debt) That's hardly the kind of statement that should cause the media frenzy seen today.
If one recollects properly, Ecuador last year simply announced it was defaulting a 100% on its sovereign debt. Period. No request to delay, etc. A classic F U to bond holders. That's just one comparison.
3. 59 to 120 billion of debt. Not all is sub-prime UAE or Dubai real estate. Most of that money was used to purchase assets overseas like stock exchanges, property development in Las Vegas (MGM), ports, Barneys, etc.
Yes I would hate to be a bondholder and see my investment lose 40% overnight, but there is such a big deal being made out of a state (Dubai) that has the backing of Abu Dhabi, a hydrocarbon power that can bail out Dubai 7 times over if it wanted to.
Actually, this announcement betrays strategy. After all, Rothchilds are advising the city-state. Rothschilds are probably looking out for Abu Dhabi's money here since they have had a presence in Abu Dhabi for decades.

friendly ayraab said...

A lot of mistakes were made by Dubai. A clearout of executive management is ongoing. But it's not the end of the world for Dubai as the city remains THE services hub of the entire region, gateway to Iran, and a top destination for the wealthy.
Now anyone who knows anything about Ireland, which boasted a real estate boom possibly bigger than Dubai's...
Ouch! That place is dead as dead...
It would help if some of these a-hole journalists would spend a few days in Dubai and seeing what it's about before pronouncing it as dead.

friendly ayraab said...

"But the question remains--Is Dubai the UAE's Lehman?"
Good question, but
Let me offer some perspective. Goldman have been quite chummy with Dubai gov't for a few years now. Goldman knows a good business partner when it sees one.
The kind of business partner that sells desert plots for 200 dollars a square foot to investors and then goes and gets levered up 10 times to speculate elsewhere. The kind of business partner that understand fully well the concept of charges and fees for all kinds of things. Just like Goldman.
I'm wondering who the hell is selling (short?) Dubai CDS today and yesterday because of this "announcement"???
I'll wager 10 bucks they're bullshitting the markets to make a killing later by shorting CDS's and picking up some cheap bonds.
It's a possibility.
So is it Lehman? Yes, because they're in the shit right now. But Dubai's teaming up with Goldman, no doubt about it.
It will surface later.