Make us your home page
Instagram

Dubai's dream of Middle East magnificence crushed by debt

DUBAI, United Arab Emirates — Just a year after the global downturn derailed Dubai's explosive growth, the city is now so swamped in debt that it is asking for a six-month reprieve on paying its bills — causing a drop in world markets Thursday and raising questions about Dubai's reputation as a magnet for international investment.

The fallout came swiftly after Wednesday's statement that Dubai's main development engine, Dubai World, would ask creditors for a "standstill" on paying back its $60 billion debt until at least May. The company's real estate arm, Nakheel — whose projects include the palm-shaped island in the Persian Gulf — shoulders the bulk of money due to banks, investment houses and outside development contractors.

In total, the state-backed networks nicknamed Dubai Inc. are $80 billion in the red, and the emirate needed a bailout earlier this year from its oil-rich neighbor Abu Dhabi, the capital of the United Arab Emirates.

With U.S. markets closed Thursday for Thanksgiving, other markets worldwide took the news badly — with the Dubai woes and the continued fall of the U.S. dollar giving investors twin worries.

In Europe, the FTSE 100, Germany's DAX and the CAC-40 in France opened sharply lower. Earlier in Asia, the Shanghai index sank 119.19 points, or 3.6 percent, in the biggest one-day fall since Aug. 31. Hong Kong's Hang Seng shed 1.8 percent to 22,210.41.

"Dubai's standstill announcement … was vague, and it remains difficult to discern whether the call for a standstill will be voluntary," said a statement from the Eurasia Group, a Washington research group that assesses political and financial risk for foreign investors interested in Dubai.

"If it is not, Dubai World will be going into default, and that will have more serious negative repercussions for Dubai's sovereign debt, Dubai World and market confidence in the UAE in general," the statement added.

Dubai became the gulf's biggest credit crunch victim a year ago. But its ruler, Sheik Mohammed bin Rashid Al-Maktoum, had continually dismissed concerns over the city-state's liquidity and claims it overreached during the good times.

When asked about the debt, he confidently assured reporters in a rare meeting two months ago that "we are all right" and "we are not worried," leaving details of a recovery plan — if such a plan exists — to everyone's guess.

After months of denial that the economic downturn even touched the glitzy city-state, the Dubai government earlier this year showed signs of trying to deal with the financial fallout that has halted dozens of projects and touched off an exodus of expatriate workers.

Last week, Sheik Mohammed demoted several prominent members of Dubai's corporate elite and replaced them with members of the ruling family, including his two sons, one of whom is Mohammed's designated heir.

"By shifting the power base back to the family, things are as they should be as far as Abu Dhabi is concerned," said Mohammed Shakeel, a Dubai-based analyst for the Economist Intelligence Unit.

After an expensive adventure in doing things the Western way, it's "going back to basics" for Dubai, Shakeel added.

Dubai's dream of Middle East magnificence crushed by debt 11/26/09 [Last modified: Wednesday, November 3, 2010 10:02am]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Associated Press.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. Palm Harbor boat dealer facing litany of complaints of bad deals

    Business

    PALM HARBOR — With an aging father sick in the hospital and a son just graduating high school, Andrew Kashella, in between jobs, knew what he had to do.

    A sign on a front window of Gulf Coast Boat Sales, 37517 Us Highway 19 N, in Palm Harbor, notifies people they are under restructuring  The Pinellas County Sheriff's Office has received 20 complaints against Gulf Coast Boat Sales in Palm Harbor. Complainants say they sold the shop their boats and never got paid and/or paid for boats they never received. Pinellas County Consumer Protection is leading the investigation.
  2. To catch a poacher: Florida wildlife officers set up undercover gator farm sting

    Wildlife

    To catch a ring of poachers who targeted Florida's million-dollar alligator farming industry, state wildlife officers created the ultimate undercover operation.

    To catch a ring of poachers who targeted Florida's million-dollar alligator farming industry, the Florida Fish and Wildlife Conservation Commission set up an undercover operation. They created their own alligator farm, complete with plenty of real, live alligators, watched over by real, live undercover wildlife officers. It also had hidden video cameras to record everything that happened. That was two years ago, and on Wednesday wildlife officers announced that they arrested nine people on  44 felony charges alleging they broke wildlife laws governing alligator harvesting, transporting eggs and hatchlings across state lines, dealing in stolen property, falsifying records, racketeering and conspiracy. The wildlife commission released these photos of alligators, eggs and hatchlings taken during the undercover operation. [Courtesy of Florida Fish and Wildlife Conservation Commission]
  3. CBO analysis: 23 million would lose health coverage under House-passed bill

    National

    WASHINGTON — The Republican health care bill that passed the House earlier this month would nearly double the number of Americans without health insurance over the next decade, according to a new analysis by the nonpartisan Congressional Budget Office.

    Demonstrators protests the passage of a House Republican health care bill, outside the the Capitol in Washington, on May 4. The House took the unusual step of voting on the American Health Care Act before the Congressional Budget Office could assess it. That analysis was released Thursday and it showed the bill would cause 23 million fewer people to have health insurance by 2026. Many additional consumers would see skimpier health coverage and higher deductibles, the budget office projected.
  4. Florida Specialty Insurance acquires Pinellas Park's Mount Beacon Insurance

    Banking

    Tens of thousands of homeowners who were pushed out of Citizens Property Insurance for a private carrier since 2014 are finding themselves changing insurance companies yet again.

  5. Marijuana extract Epidiolex helps some kids with epilepsy, study shows

    Health

    A medicine made from marijuana, without the stuff that gives a high, cut seizures in kids with a severe form of epilepsy in a study that strengthens the case for more research into pot's possible health benefits.

    An employee checks a plant at LeafLine Labs, a medical marijuana production facility in Cottage Grove, Minn. [Associated Press (2015)]