Following my recent posting about the crisis in Dubai, it was not at all surprising to hear about Dubai World wanting to delay its debt payments of nearly $80 Billion. The crisis will have far reaching repercussions no matter how much one tries to play down. The initial knee-jerk reaction saw the stock markets across the world taking a plunge.
Dubai World’s largest creditors are domestic banks in Dubai and Abu Dhabi.
Worst hit by the Dubai crisis is Britain. UK banks account for nearly $50 Billion of global loans to United Arab Emirates. Royal Bank of Scotland (RBS) leads the pack. HSBC, Standard Chartered and Barclays are next in the pack. In addition to UK banks, UK firms have invested nearly $7.5 Billion in Dubai.
Dubai holds nearly $10 Billion of investments in Britain. Some of the big investments include, 21% stake in London Stock Exchange, 100% stake in QE2 cruise liner, 80% ownership in Travelodge and so on.
As far as India is concerned, initial estimate shows that Indian banks' exposure to Dubai is nearly 6500 Crores. RBI has already requested the banks to submit their actual exposure to Dubai. Property developers in India have confirmed that their exposure to Dubai is negligible. The biggest worry for India is the impact on remittance from Dubai.
What is next for Dubai in terms of servicing the enormous debt?
One possibility is, Dubai's deeper pocketed neighbor Abu Dhabi coming to the rescue with some conditions attached. Abu Dhabi has already bailed out Dubai with $10 billion in Feb this year. However a total bail out is unlikely to happen. The early indication is that Abu Dhabi may attempt to bail out Dubai on a case by case basis.
The worst case scenario is Dubai asking for write off of its debt. It will be suicidal for the emirate. If this occurs, it will have serious ramification on fund flows into emerging economies. However this scenario is quite unlikely to happen.
Holders of the Islamic bonds of Nakheel, the developer owned by Dubai World that is known for the palm-themed islands it built is most in pain. On Dec. 14, 2009, $3.52 billion in Nakheel bonds come due. Next course of developments will be based on whether Dubai will be able to make this payment on time.
Rajesh Kumar
No comments:
Post a Comment