Breaking news from FT: Dubai rejects debt guarantee. This is going to hurt!
By Daniel at 30 November, 2009, 10:27 pm
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Breaking news from FT: Dubai rejects debt guarantee
Dubai’s government will not guarantee the debts of Dubai World, the state-owned holding company struggling under the weight of $59bn (£36bn) in liabilities, arguing that lenders were mistaken to think that there was sovereign backing.
Abdulrahman al-Saleh, department of finance chief, said that creditors were responsible for their own lending decisions and should differentiate between companies and the state. (What would it take for the United States of America to say the same)
“Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct,” Mr Saleh said.
Dubai World said last night it had began “constructive” talks with banks to restructure $26bn of debt, including liabilities owed by its property companies Nakheel and Limitless. Nakheel has asked for all three of its sukuk, worth $5.25bn, to be suspended from trade.
In its first statement since the crisis began, Dubai World said other companies such as DP World, Jebel Ali Free Zone and Istithmar would not be included in the restructuring because they were financially stable.
Mr Saleh’s comments underscored the government’s intention to cut Dubai World adrift and raised questions over whether it would distance itself from other parts of the emirate’s commercial empire.
In a note to clients, RBC Capital Markets said that Dubai World bondholders had “almost no legal legs to stand on” to recover the value of their investments from the government in the event of a default.
In a note to clients, RBC Capital Markets said that Dubai World bondholders had “almost no legal legs to stand on” to recover the value of their investments from the government in the event of a default.
“We now have to look at each Dubai entity on its own merits and cash flows,” said one other banker. “The mood is really crummy, and it’s not just Dubai government risk. We have to be worried about healthy corporates with exposure to companies like Nakheel too.”
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