Man-made islands, plush hotels, booming construction scene… and billions of debt.
Just a month ago, we’ve posted the trouble over Dubai’s very ambitious project The World
. Just this week, the state announced that it is asking for a six-month reprieve on paying its bills. This caused panic in world markets the day after. The New York Times writes, “The terse statement came in the middle of negotiations between creditors and Dubai World, the corporate arm of Dubai, which has led many of its most ambitious real estate projects, but is now struggling under the burden of $59 billion in liabilities.
“For the banks that financed the debt-fueled ascent of Dubai — analysts’ estimates put its total debt at about $80 billion — the move by Dubai to obtain a standstill highlights a truth that many in the region had been trying to make clear to bankers. It is that Abu Dhabi, the oil-rich governing emirate of the United Arab Emirates, will not unconditionally bail out its more profligate neighbor. Instead, a genuine restructuring of Dubai’s debt, with pain being shared equally between Dubai and its bankers, needs to take place.”
But Dubai loyalists are clarifying the issue that only the state-owned conglomerate Dubai World is rocked by debt problems and not the entire country. Some are arguing that since only its wealth fund is funded by Dubai, it can’t generally speak about the condition of the other states. In fact, Abu Dhabi is reportedly going to bail-out Dubai by an unknown sum as of this writing. In our opinion, the announcement was a heavy influence in the entire financial health of the state even if it concerns Dubai World only.
What’s startling about Dubai is that it was on a race to prove to the world that it can build a real estate industry that caters only to the affluent jet setters, it can break any world records for the highest, largest, widest, etc., and it can ignore any repercussion that a global financial downturn has in place. It turns out however that it has its limits just like this country.