Browse
related articles
Dubai World debt standstill
Dubai World, the parent company of the world's third-largest port operator DP World and of Nakheel, the real estate unit building palm-shaped islands off the emirate's coast, was forced to restructure $14.4bn of bank debt and $8.9bn of government liabilities.
The company said it would ask all creditors to "standstill" debt maturity on Islamic bonds due in December 2009, for at least six months. And stock markets already feeling the weight of the global economic downturn, reacted accordingly: the Dubai market shed 12.5% of its value and Abu Dhabi lost 11.5% in two days of trading following the announcement.
"The Dubai World default confirmed people's fears and reinforced what was already a bad situation," Andrew Charlesworth, Head of Capital Markets for the Mena region at Jones Lang LaSalle, tells AMEInfo.com.
"It was more of a sentiment issue than a physical problem - default is not a unique thing, but it was a much bigger story here because it was the first time it had actually happened here and people weren't familiar with it."
Dubai had become accustomed to a near-decade of unprecedented growth as it turned itself into a tourism, trade and financial services hub. Government-owned firms built the world's tallest building and man-made archipelagos in the shape of the continents. They also snapped up trophy assets from London to Las Vegas, in the process accumulating $109.3bn of debt, according to International Monetary Fund (IMF) estimates.
Media coverage creates negative legacy
When the global financial crisis hit, however, the positive headlines turned negative and Dubai was shattered by the flight of foreign investment from the Gulf. The emirate's real estate market crashed, and Dubai World's exposure "added petrol to the fire", says Charlesworth.
"We were in the middle of great turmoil and it was a big surprise, which is evident if you look at the prices of assets - the market value of assets literally crashed," recalls Amer Halawi, Head of Research at Dubai-based investment house Shuaa Capital.
Global media coverage was ferocious, and as Western banks scrambled to assess their exposure to Dubai World, officials in the emirate went as far as blocking distribution of the Sunday Times, a UK paper which printed a two-page spread on Dubai's debt crisis alongside a picture that was deemed offensive.
"The media coverage certainly had an impact on the investment market, and it leaves a legacy in people's minds, particularly those outside this market, who wonder what is going on here," says Charlesworth at JLL.
"People who don't understand this market - the dynamics of the market and what drives it historically - now have a big question mark in the back of their minds. It takes time to unravel that and get them back on track and thinking properly, as negative sentiment tends to overshadow the good in a market."
Markets relieved by creditor deal
There has at least been tangible progress in the restructuring process. On May 20 2010 Dubai Government said it had reached a deal with its main creditor group, under which banks would be paid $4.4bn in five years and another $10bn over eight years at below-market interest rates.
The settlement came after Dubai Government hired Aidan Birkett, managing director of Deloitte's corporate finance team, to oversee Dubai World's debt restructuring.
Staff
