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Dubai asks for debt freeze - 26 November 2009

Market analysts have reacted with shock to the announcement that Dubai World, the government holding company which includes developer Nakheel and owns ports operator P&O, has asked creditors for an extension on its debt repayments of at least six months. The company has requested a ‘standstill’ on payments due to be made until at least May 2010, and has appointed Deloitte to restructure the business.

The news raises the spectre of one of the largest companies in Dubai defaulting on it’s considerable debt burden, and underlines the shaky state of Dubai’s finances in the wake of the crash in property prices and demand which has brought the frenetic development of the Emirate to a shuddering halt. According to the Guardian, one credit insurance broker described it as ‘the biggest sovereign-related credit event since the start of the crisis.

Dubai World, under the guise of their master developer Nakheel, has been responsible for some of the most ambitious and recognizable new developments in Dubai in recent years, from the iconic Palm Jumeirah to the World project of offshore islands built to resemble a map of the planet. Work on the World was suspended earlier this year before the project was completed. Dubai World also owns P&O, which it controversially bought in 2005 to put an end to the 168-year history of British Ownership of the ports operator.

The conglomerate of companies is said to have around $60bn of debts, of which $4bn is falling as due next month. The company has asked creditors to extend the deadlines on these loans until at least 30th May 2010 to allow for restructuring and to raise the funds. The ability of Dubai world to keep up to date with its debts is seen as a key indicator of the financial health of the state of Dubai. The Emirate has already received around $5bn from the UAE federal government in a bond purchase which was effectively a bail out.

The news will do little to help the struggling real estate market in Dubai either. There had been some anecdotal stories that things were tentatively beginning to look up, that people were starting to come back to Dubai to look for bargains among the half-finished skyscrapers that litter the skyline. While no-one was talking about a recovery as yet, the mere fact of there being some movement in the Dubai property market was seen as a positive sign.

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