After tentatively implying that there would be a back-stop to Dubai World´s debt problems, the Dubai Government on Monday disowned any legal obligation to Dubai World and told creditors that they needed to take responsibility for their loans.
“Creditors need to take part of the responsibility for their decision to lend to the companies,” said Abdulrahman al-Saleh, director general of Dubai’s department of finance. “They think Dubai World is part of the goverment, which is not correct.”
My Comment:
What´s going on here? The back and forth isn´t recent, but has been going on the whole year, with Dubai implying at one time that its debt load was taken care of, and at another, that it still had more problems; and in this instance, first seeming to back up Dubai World and then, backing-off from its backup….
The timing and vacillation seem to suggest that the government is testing the market and the reaction of investors before making its move. Not good.
And it leaves open the possibility, already raised by UBS in a recent Bloomberg piece, that the problems exceed the $80 billions of government liabilities and might extend to off-book structures that are not presently known.
Update:
After weekend assurances from Dubai that its much richer fellow-emirate Abu Dhabi, seat of the UAE federal government, would help, and that liquidity would be assured for local and international banks that needed it (through a “special additional liquidity facility”), Asian markets recovered this morning from their sell-off last week. But this morning, the local stock exchanges have been hit hard and this new announcement could provoke a second sell-off in world markets, especially in the UK FTSE, since British banks, especially Royal Bank of Scotland, have loan exposure to Dubai World.
Then, there´s also the exposure that UK banks have to other investments where Dubai World holds a stake.
And there´s the indirect exposure US banks have to Dubai through ties with UK banks.
What’s the harm when a gov’t comments in such definite tones on a company they own: “Not our problem. Stop demanding your money back.” Especially a Gov’t that will need to be bailed out by another.
So are you saying that there could potential $100+ billion scams and bursting quick-rick schemes swirling in Dubai?
You can be sooooooo cynical at times. Dubai is a stable place on the rise…
It’s a former goat town turned into overnight metropolis on a water barren desert… Built on easy credit, driven by Gov’t owned companies… Propped up by global inflation and promises. Let’s not forget all those smart bankers. It’s not like these are the same banks that took US mortgage debt as an asset.
But, at least you are more realistic than that trouble-maker, Mark Thornton:
“Dubai will once again be a goat town.”
http://www.lewrockwell.com/blog/lewrw/archives/023487.html
That was back in Oct. 2008. So far, there have been no articles on goats taking over Dubai. Shame on him and his darn hyperbole.
Although, the goats may be the ones tapping phones, threatening whistle-blowers, and dumping sewage near hotels:
http://www.google.com/search?q=The+Dark+Side+Of+Dubai
Only time will tell.
The problem with anyone saying Dubai isn´t going to cause a spill over or that it is too small to cause a spill over is that they are saying it prematurely. Right now, no one knows exactly what´s involved. The highest figurer I´ve seen, 125billion dollars, isn´t exactly chump change even if it´s considerably less than what was involved in Lehman or LTCM.
But the actual money is only a part of the equation. (And even there, that is by no means a definitive figure).
There is also the issue of Dubai´s other investments..and what would happen in case of a fire sale of assets especially when CRE is taking a hit and when the second leg of the housing bubble is unfolding.
It may or may not be so, the term cascading cross-defaults comes to mind… started by a very small event such as this.