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Friday, November 27, 2009

Dubai World is in debt

Dubai has delivered investors a wake-up call. The Gulf State's shock decision to seek creditors a six-month standstill on debt of conglomerate Dubai World on interest payments tied to about $60 billion in debts has hit the confidence of global investors.

On Oct 16, I posted an entry titled “Dubai Support Fund Insufficient To Meet Debts”, describing Dubai's difficulty in servicing billions dollars of debts. Oil is currently trading many times below its last year's peak of around US$147 per barrel and is hitting Dubai's overly ambitious multi billion dollar projects. Even though global stock market has rebounded significantly since March 2009 and world economy showing signs of recovery, it is impossible to catch up fast enough given Dubai's huge debts.

Islamic bonds, called sukuk, from Dubai World real-estate subsidiary Nakheel dropped from around 110 cents to around 70 cents. The bonds are due to mature on December 14. European markets reacted negatively over the possibility of losses for European banks exposed to Dubai. At this point in time, Asian markets are all trading below last closing. It is lucky that some bourses are closed for the day due to Hari Raya.

The cost of insuring sovereign debt issued by Dubai has now increased by more than 50% on Thursday. Along with Dubai, debt insurance jumped among Gulf states such as Bahrain and Qatar. Debt insurance costs also rose in Turkey, Russia, Greece and Ireland.

Abu Dhabi Commercial is said to have most at stake in Dubai World.

I wonder how will Singapore Exchange react on Monday.

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