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Dubai seeks delay in paying creditors

2009-11-27 18:19 BJT

Special Report: Dubai Debt Crisis |

Dubai's government-owned investment company has announced a restructuring plan and asked for a six-month delay on repaying its debts. The unexpected news has shaken its creditors and casts doubt on Dubai's reputation as an investment haven. Many fear the announcement could cause shock waves around the still fragile global financial system.

The investment company Dubai World is one of the key forces behind the growth of the city-state. The conglomerate's businesses range from shipping to property to construction of artificial islands. On Thursday, the firm asked creditors if it can postpone its payments until at least next May.

The firm's debt amounts to nearly 60 billion US dollars. That's about three-fourths of Dubai's overall debt.

To meet its obligations, Dubai launched a 20 billion US dollar bond programme at the start of the year. It initially raised 10 billion US dollars through a bond sale to the United Arab Emirates' central bank.

Analysts agree the move was necessary, but warn it could bring further pressure on the government.

Kamel Wazne, economist analyst of American Univ. of Beirut,said, "I think Dubai needs to finance its deficit through selling bonds and that's actually what it's doing right now. But this in the future might put some burden in the government if it accelerates its debt."

To compensate for its lack of oil wealth, Dubai relies mostly on trade, finance and tourism. The over-dependence on foreign capital and large-scale projects have curbed its rebound.

Analysts say the government should work out stimulus measures as soon as possible. It also needs to create more trust in its banking system and reduce unemployment.

Kamel Wazne said, "This will alleviate some of the pressure on the real estate sectors, and some of the ramification of the financial crisis. I think Dubai is heading, by doing that, probably, it would meet its short term obligation."

Dubai is widely recognized as an ideal location for investment, with its sprawling man-made islands, indoor ski slopes and the world's tallest tower.

However, the global economic downturn has hit its economy hard. The city-state's property prices have slumped by around 50 percent amid the crisis. Project cancellations and delays have also prompted lay-offs.

The announcement from Dubai World has stoked fears of a potential default and an economic contagion through the global financial system, particularly in emerging markets.

Editor: Zhang Ning | Source: