Dubai, until then known for its outsized ambition and mammoth construction projects such as artificial islands and sky-high hotels, started evoking other, less kind epithets.
A view of the Palm Island in Dubai.
In September, Dubai World — which has interests in real estate, transportation, logistics and natural resources — struck a deal with its creditors to restructure about $24.9 billion of liabilities.
“Obviously, there are still unresolved issues on the debt side, but the fact that we have had a deal with the creditors and debt restructuring, that’s important,” said Lars Christensen, chief analyst at Danske Bank. “Maybe we shouldn’t be so scared of debt restructuring for excessively indebted countries.”
Still, Christensen said that “the trust and credibility of Dubai World and the Dubai government have suffered tremendously from this crisis.”
Debt piles high in Dubai
While Dubai World’s agreement with lenders helped improve sentiment, concerns over debt loads in the emirate have not gone away. Most of the recent jitters center around Dubai Holding, a company controlled by Dubai’s ruler, Sheikh Mohammed bin Rashid Al Maktoum. The firm was created to consolidate Dubai’s large-scale infrastructure and investment projects.
“The big attention will turn to Dubai Holding, which is the next weakest pillar in Dubai,” said Christopher Davidson, a professor in Middle East politics at Durham University in the U.K. who has written a book on Dubai. “There have been concerns that Dubai Holding is not servicing its debt properly.”
Two units of Dubai Holding, Dubai International Capital and Dubai Group, are in talks with lenders over billions of dollars in debt, according to reports.
In recent weeks, Dubai Group has reportedly missed loan payments. Referring to these developments, Royal Bank of Scotland said in a research note: “Dubai’s government must realize that if it is to successfully navigate the next couple of years where external debt repayments will average nearly $20 billion per annum, it needs to handle such things more carefully. Developments such as these do not bode well for transparency.”
Transparency has hardly been a strong feature of the power structure in Dubai, a monarchy that’s been ruled by the Al Maktoum family.
Dubai’s ambitious skyline.
Dubai Holding “has been the development vehicle of Sheik Mohammed,” Davidson said. “The clampdown on information regarding Dubai Holding’s debt is much more serious. This much more greatly damages the legitimacy of the ruler.”