Morts Musings

The news from Dubai World, last Wedsnesday, that they were seeking to delay the repayments on £36bn worth of loans, has raised anxieties both in the Middle East’s financial markets and around the world. Many investors had assumed that, because the investment company was run by the Dubai Govt, any debts which Dubai World accrued would be secured. However todays announcement by the Dubai Finance Minister made the position, that the Dubai Govt wouldn’t be guaranteeing these debts, absolutely clear.

To try and stem the fears of a new global financial crisis becoming a reality, the UAE’s central bank has announced the implementation of a fund to provide extra liquidity to both UAE based banks, & foreign banks which operate in the country; a move which appears to have calmed the fears of the financial markets somewhat, at least based on the performance of the Asian markets today.

Closer to home Dubai’s financial woes are cause for concern for a number of UK banks, including HSBC, RBS, Barclays & Lloyds, who viewed the Emirate as a safe financial bet & invested heavily; RBS is the biggest underwriter of Dubai Worlds’ loans, so nervous times in Gogarburn no doubt. Whether they’ll be covered by the UAE Central Bank’s bail out fund, and if so, to what extent, is unclear at the moment, but these must be worrying times for a few big wigs in the British financial sector. (Unless, of course, they’re expecting that they’ll just get bailed out by the British tax payer, again.)

Flight from Dubai?

Still, in the longer term, the decision by the Dubai Govt not to back Dubai World’s debts may come back to haunt them. Although they insist that the company has always been a seperate entity, many investors assumed that, because it’s state run, it would be bailed out by Govt if there were any problems. Many investors may feel that they’ve been mislead, and, if so, it could make it significantly more difficult for Dubai to attract investors in future; at the very least future investors will want to know exactly what terms they’re lending on.

Well, the above was written yesterday, but it seems the story has moved on overnight, so no need to cancel your flights to Dubai just yet!
Dubai world is now in talks with its creditors and is seeking to restructure just £26bn of its total (£59bn) liabilities. Although that still sounds like a huge sum to the average person, apparently the move has greatly calmed fears in the banking world. I guess it sends signals that the company isn’t on the verge of collapse, and with the economic system being so reliant on the confidence, it might be enough to prevent Dubai Worlds’ problems spreading & precipitating another dip in the world’s, still recovering, financial markets.