Dubai debt default looms on $80 billion of loans, requests debt payment freeze

Dubai has shocked investors by asking for a debt standstill at Dubai World, the government's flagship holding company that has developed some of the world's most extravagant real estate projects. The move raised the spectre of default in the Middle East's trading hub just as early signs of economic recovery have emerged. Dubai rode the wave of easy credit but was badly hit by the global credit crisis. Dubai's surprise move angered investors who had been reassured by local officials for months that the city would meet all obligations on its $80bn (?48bn) of gross debt in spite of the global recession and a real estate crash.

The government company has had to cancel plans for the world's tallest tower and a constellation of reclaimed islands, as collapsing cash flow left the developer on the brink. The government's announcement came after the local stock market had shut and on the eve of the Eid holidays, during which most offices will be shut until December 6. S&P and Moody's immediately downgraded the ratings of all 6 government-related issuers in Dubai. Moody's cut ratings on some Dubai government-related entities to junk status, while S&P cut ratings on some entities to one level above junk. S&P said the restructuring "may be considered a default under our default criteria".

- And it wasn't that long ago, perhaps a couple of weeks or two, that I heard talk from some people around me, not peakoilers obviously, who had been saying that in Dubai the oil rushes from the ground. Of course, since they are not peakoilers, how could they have known that these famed oil gushers have not been seen for decades, or how Dubai, and possibly large swathes of the Middle East oil producers are quite possibly past the point of peak oil?

And since they are not members of this small but informed community, how could they have known about Dubai Dreams, the post made back in Jul 2005, where it was revealed that not all is as it seems over there? The contrarian community has also been monitoring developments in this area and it would not come as a surprise that the situation has come to this.

Rather, what *is* a little surprising to us is the timing and manner in which the announcement has been made. Releasing such a huge piece of news on the eve of a super-long holiday weekend? And, coincidentally, right before Thanksgiving on the American side of things? The Times Online reports :

Like over-leveraged companies that are being exposed by the recession, Dubai had borrowed beyond its means to fund its building boom. But, as shocked investors saw it, this was a government at risk of bankruptcy, not a corporation ... four lenders - HSBC, Standard Chartered, Barclays and RBS - are the most exposed. The trauma of Dubai's news was compounded by its lack of clarity. Having issued its statement the emirate shut up shop for the Eid holiday, saying no more ...

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