What is Dubai Crisis?

 The Dubai Debt Crisis 2009 has been called by economists a consequence of real
estate bubble burst when on November 26, 2009 vaDubai proposed to delay repayment
of its debt which includes delay in the payment of $ 59 Billion debt on Dubai World, the
investment vehicle for the emirates for 6 months.
Dubai's Economy:
 Dubai has one of the most unique and unusual economies in the world. Dubai has
numerous free zones including Jebel Ali free zone, Dubai Maritime City, Dubai Internet
City, and Dubai Media City.
 Contrary to the general assumption that Dubai's economy is totally driven by oil
and gas,It is a fact that oil sector only comprises less than 6% of the economy of Dubai.
 In fact, Dubai's portion of natural gas revenues in the United ArabEmirates is only
about 2%. Dubai's oil production is estimated to be about 240,000 barrels per day.
 It is true that Dubai's economy was built on the back of Oil Money but Dubai's oil
reserves have diminished significantly and are expected to be exhausted in 20 years.
 The other largest contributing sectors of Dubai economy are Real estate
and construction (22.6%), trade (16%), (15%) and financial services (11%) (all are
2007 figures).
Diversifying to Real Estate:
 In 2000, Dubai Financial Market (DFM) was established. It was established as a
secondary market for trading securities and bonds, both local and foreign. During that
time the Government decided to diversify Dubai's economy from a trade-based, but oil-
reliant, economy to one that is service and tourism-oriented has made real estate more
valuable.
 The orientation towards tourism and service led the economy towards Real
Estate Boom and the result was appreciation in the property prices from 2004–2006.
 Dubai became a center of large scale real estate development projects and this
led to the construction of some of the tallest skyscrapers and largest projects in the
world such as the Emirates Towers, the Burj Dubai, the Palm Islands and the world's
second tallest, and most expensive hotel, the Burj Al Arab.
 Thus Dubai landscape started changing. Earth movers crawled alongside massive
cranes and trailer trucks loaded with steel and concrete. The Dubai story began to
unfold, rapidly.
 For many years, Dubai has been a safe haven for investors offering fantastic
returns of 40% plus per Annam and in recent years has attracted clients who have been
trying to get on the investment ladder.
 However the ugly face of the so called "Dubai Model" which was based upon debt and speculation,
was hiding somewhere in the breakneck boom.

What is Dubai World?

 Dubai World is an investment company that manages and supervises a portfolio
of businesses and projects for the Dubai government across a wide range of industry
segments and projects that promote Dubai as a hub for commerce and trading.
 The chairman of this company is Sultan Ahmed bin Sulayem.
 Dubai World was established under a decree ratified on 2 March 2006 by Sheikh
Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the
United Arab Emirates and Ruler of Dubai. He also holds the majority stake in Dubai
World.
 Dubai World’s assets range from stakes in Las Vegas casino company MGM
Mirage to London-traded bank Standard Chartered Plc and luxury retailer Barneys New
York through asset-management firm Istithmar PJSC.
Seeds of Trouble:
 Due to the ongoing global financial crisis of 2008-09, Dubai's real estate market
experienced a major downturn. This lead to the slowing economic climate.
 It was declared in an international press council by Mohammed al-Abbar who is
senior aide to Dubai's Ruler and UAE's Vice President/Prime Minister, Sheikh Mohammed
bin Rashid Al Maktoum and who serves as the Director-General of Dubai's Department of
Economic Development, and Chairman of Emaar, one of the world's largest real estate
companies in December 2008 that, Emaar had credits of US$ 70 billions and the state of
Dubai additional US$ 10 billions while holding estimated 350 billion in real estate assets.
 By early 2009, the situation had worsened with the global economic crisis taking
a heavy toll on property values, construction and employment.
 As of February 2009 Dubai's foreign debt was estimated at approx. USD 100
billion, leaving each of the emirate's 250,000 UAE nationals responsible for 400,000 USD
in foreign debt.
 A longer-term assessment of Dubai's property market showed depreciation; some
properties lost as much as 64% of their value from 2001 to November 2008.
 It contributed to the failure of key businesses, declines in consumer wealth
estimated in the trillions of U.S. dollars, substantial financial commitments incurred by
governments, and a significant decline in economic activity.
The Burst of the Bubble:
1. Dubai, ruled by Sheikh Mohammed Bin Rashid Al Maktoum, had borrowed $80
billion in a four-year construction boom to transform the economy into a regional
tourism and financial hub.
2. This emirate in the due course of time suffered the world’s steepest property
slump in the global recession, with home prices dropping 50 percent from their 2008
peak.
3. Dubai world with $59 billion of liabilities, sought a “standstill” agreement from
creditors. Its debt includes $3.52 billion of bonds due Dec. 14 from property unit
Nakheel PJSC.
4. Some analysts say that : The core reason for the Dubai Financial mess up is that
Sheikh Mohammed's decision to invest all his wealth as well as Dubai govt fortunes in
Real estate markets in United states through a foreign investment arm of Emaar,which
claimed to be the second largest property developer in US ,which ultimately went
bankrupt due to recession and filed for chapter 11. Chapter 11 is a chapter of the
United States Bankruptcy Code, which permits reorganization under the bankruptcy laws
of the United States. (Chapter 7 governs the process of a liquidation bankruptcy, while
Chapter 13 provides a reorganization process for the majority of private individuals. )
5. Subsequently, Dubai shifted into crisis mode with its dangerous building boom
stalled, its lending bonanza vanished and government pondered wider steps to rescue
banks.
Announcement of Official Moratorium:
1. On November 25, 2009, the Dubai government announced that the company
"intends to ask all providers of financing to Dubai World and its subsidiary Nakheel to
'standstill' and extend maturities until at least 30 May 2010". The company will also
undergo a restructuring process with the help of Deloitte consultants. Several months
earlier, Dubai World accounted for a $59-billion debt, nearly three-quarters of the
emirate's US$80-billion debt. This includes a US$3.5-billion loan which the company is
unable to repay by its December deadline.

Impact of Moratorium:
 The government's announcement led both Moody's and Standard & Poor's
Investors Services heavily downgraded the debt of various Dubai government-related
entities with interests in property, utilities, commercial operations
and commoditiestrading. In Moody's case, the downgrade meant that the affected
agencies lost their investment grade status.
 This led the main Europen markets plunged on 26, November followed by drops
in Asian stocks on the 27 November. This led to a drop in the share indices of the major
markets of the world.
Possible Role of Abu Dhabi as a Saver:
 Dubai asked Abudhabi to bail out from this crises.
 However , it up to Abu Dhabi, the wealthy capital of the UnitedArab Emirates how
it would like to assist Dubai.
 Analysts are expecting Abu Dhabi (the senior and controlling Emirate in the UAE)
to help soften the blow of this crisis.
 A recent report by HSBC confirms that Abu Dhabi has the cash liquidity to support
its own banks and property companies.
 Therefore, Abu Dhabi is likely to use some of this liquidity and stability to help
prevent a complete collapse of markets in Dubai.
 The UAE Central Bank has already confirmed that it´s board has discussed plans
to launch facilities for supporting real estate lending in Dubai, as well as in the rest of
the UAE.

DUBAI WORLD MEANING, REASON FOR CRISIS, CURRENT

SCENARIO, EFFECT ON FINANCIAL MARKET AND BANKS
DEC 1, 2009 Finance
Dubai, home to the world’s tallest tower and the biggest man-made islands, is in a financial crisis.
The dream city, where lakhs of expat Indians make a living, is trying to salvage Dubai World, the
emirate’s flagship in the industrial world, which is struggling to pay back a $ 59 billion loan
(around Rs 275,000 crore).
What is Dubai World? Why is it important for the Gulf region?
“The Sun Never Sets on Dubai World”, is its tagline. The investment portfolioof Dubai World,
owned by the Dubai Emirate and one of the largest holdingcompanies in the world, extends across
100 different cities in the world. It is spread across a wide spectrum of strategic industries and
sectors ranging from ports management, property development, hospitality and tourism, free zone
operations,private equity investment, retail to sectors as diverse as aviation, commodities
exchange and financial services. Dubai World owns and invests in companies that are the driving
force behind iconic property projects such as ‘The Palm’, ‘The World’ and DP World which is the 3rd
largest marine terminal operator in the world.
How did it get into a debt trap?
The company ia a classic example of huge borrowing beyond its means. In short, the
company borrowed a huge amount from banks to finance its various projects during the 2005-08
boom period but failed to come up with a repayment plan. The global crisis of 2008 triggered the
crisis and it never recovered from the blow. Dubai accumulated $80 billion of debt by expanding in
banking, real estate and transportation before the financial markets were hit by the global crisis.
Dubai World accounts for $59 billion of these liabilities and it doesn’t have money to repay this
debt. Dubai suffered the world’s steepest property slump in the global credit crisis as home prices
fell 50 per cent from their 2008 peak.
Where does the company stand now?
According to Dubai’s Department of Finance, the company will ask creditors for a “standstill”
agreement as it negotiates to extend maturities, including $3.52 billion of Islamic bonds due
December 14 from its property unit Nakheel PJSC. Abu Dhabi is also trying to salvage the
company by arranging funds. However, rating agencies Moody’s Investors Service and Standard
& Poor’s cut the ratings on several statecompanies, and said they may consider the plan a
default. The company had total assets of $99.6 billion at the end of 2008 and total revenue of
$14.2 billion.
Why are financial markets and banks worried?
Lenders, mainly European banks, around the globe have lent around $40 billion to Dubai World.
Any default by Dubai World will put these banks, which are yet to recover fully from the recent
global crisis, in a tight spot. This will also affect other companies in the region and credit rating will
take a blow. Stock markets are worried over bank defaults and the big blow to Dubai’s reputation
as an international finance centre. Indian investors are also worried about decline in remittances
and loss of jobs.
Will India be affected by the Dubai crisis?
Indian banks and companies don’t have a big exposure to the company. If Dubai World sinks, it
could put its arm DP World, the container operator in major ports in India, into trouble. Moreover,
any damage to the company could affect other firms in the region and many Indian expats who
work in Dubai — Indians constitute nearly 40 per cent of its population — may find it tough to
retain their jobs. This means remittances to India could decline. But the situation is not that bad
and if a bailout is worked out, the company will survive.
Exposure of Indian Banks
Indian banks have informed the Reserve Bank of India that their loan books in Dubai are
insignificant compared to their total turnover. The reports are part of the information that RBI has
called for from the banks to evaluate their exposure to Dubai World, the city
state’s investment company which has asked for a “standstill” on debt repayment till May 2010.
The combined exposure of SBI, BOB, and ICICI Bank as per their estimates on Friday stood at less
than Rs 7,000 crore. “Our exposure to the UAE is less than Rs 1,500-crore, which is below 0.3 per
cent of the total loan-book of the bank”, said an official of State Bank of India. The loans to Dubai-
based clients is largely in the form of short-term loans, which will be repaid in 3-6 months time, he
said.
ICICI Bank, also said the bank did not have any significant exposure to Dubai corporates. “ICICI
has no material, non-India linked exposure to Dubai corporates,” its spokesperson said.
Out of the Bank of Baroda’s global loan-book of Rs 1,50,000 crore, that for the UAE region is Rs
10,000 crore. Dubai accounted for half of that at Rs 4,000 crore, said CMD MD Mallya. “The bank
has only a 7-8 per cent of the total loan-book exposure to the Gulf region. These accounts are well
maintained and are unlikely to cause any kind of impact on the balance-sheet,” he said. Bank of
Baroda’s total exposure to real estate projects in UAE is even less at Rs 600 crore. Mallya said all
the projects are well diversified ones and are performing well.
S Rajendran, general manager and head, international banking, Union Bank of India, said the
bank’s office in Abu Dhabi was only meant for liaison and NRI clients services. “We have got a
small exposure of $ 5 million at our Hong Kong branch. But this branch is meant for Indian JVs
only,” added Rajendran.
Meanwhile, other PSBs, Oriental Bank of Commerce and Bank of India, too said they have no
exposure to the Dubai market. Other major private sector lenders, Axis Bankand Kotak, also said
their exposure to the Gulf region was minimal.

Read more:http://www.taxguru.in/finance/dubai-world-meaning-reason-for-crisis-current-
scenario-effect-on-financial-market-and-banks.html#ixzz0yI6wXg4G
Dubai receives bailout from Abu Dhabi
Monday, December 14, 2009

The government of Abu Dhabi in the United Arab Emirates has agreed to give US$10 billion to its
neighboring emirate, allowing the state-owned Dubai World conglomerate to repay its immediate debt
obligations. Dubai says more than $4 billion of the injection will be given to Dubai World's property firm,
Nakheel, to repay its Islamic bond that matures Monday. The remaining funds will go towards additional
expenses.

News of the last-minute bailout caused Asian stocks to rebound and pushed European shares up, which
saw gains for a third straight session. Markets in the UAE also rose, with Dubai's index moving up by 10
percent and Abu Dhabi's jumping by seven percent. Despite the good news, Algebra Capital Managing
Director Dino Kronfol says Dubai is not out of the woods yet. "This is not something that is going to be
resolved in a matter of weeks. It's going to take some time," Kronfol said. "It's going to involve restructuring
and we'll have to see how that transpires. But nonetheless, this is a positive development today."

The situation is completely different from just a few weeks ago, when Dubai World shook up global markets
by asking for a standstill on its $26 billion debt. The government of Dubai made matters worse when it
announced it would not guarantee the state-owned company's bills.

Dubai World's creditors still need to approve the standstill and effectively have until December 28 to make
a decision. That is when the grace period of Nakheel's bond ends. The government of Dubai has issued a
new law allowing the conglomerate to file for bankruptcy if its restructuring is not successful. But Kronfol
says, if the process focuses on necessary aspects, it will succeed.

"If the restructuring actually deals with Dubai's contingent liabilities," Kronfol said, "as a long-term solution,
this actually really will help put the whole debt situation of Dubai behind us and really allow the markets to
look more positively at 2010 and beyond."

Government sources say Dubai World's restructuring process could include asset sales, but they would be
limited to the Nakheel and Limitless companies and not include Istithmar World, which owns U.S. Luxury
retailer Barneys.
Crisis Over as Dubai Receives $10 Billion
Abu Dhabi Bailout
By Stephen Jones
Epoch Times StaffCreated: Dec 25, 2009Last Updated: Dec 25, 2009

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Related articles: World > Middle East

A passenger train passes in front of high rise buildings on December 2, in Dubai, United Arab Emirates. Neighbor
Abu Dhabi bailed Dubai out with a handout of US$10 billion. (Dan Kitwood/AFP/Getty Images )

DUBAI, United Arab Emirates—The debt-ridden emirate of Dubai has been given a US$10 billion (CA$10.6
billion) handout by its neighbour Abu Dhabi.

It will use US$4.1 billion of the money to pay off the debts of its state-run conglomerate, Dubai World.

A subsidiary of the sprawling investment company, Nakheel, had required the money to pay off an Islamic bond,
or sukuk, which matured on Monday.

On November 25 the Dubai government announced that it would seek to postpone repayments on Dubai World’s
US$26 billion debt.

The announcement sent shock waves through the world economy and triggered intense speculation on whether
the emirate was unable to repay its debt.

In a statement on Monday, Sheikh Ahmed bin Saaed al-Maktoum, chairman of Dubai’s Supreme Fiscal
Committee, said the US$10 billion bailout would be used to satisfy Dubai World’s debt.

“We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our
government will act at all times in accordance with market principles and internationally accepted business
practices,” he said.

He also announced the introduction of a long overdue bankruptcy law.

“This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable
restructuring of its remaining obligations,” he said.

As a result of the announcement, Dubai’s main share index closed 10 percent higher, while Abu Dhabi’s rose
more than 7 percent. But Dubai’s main index has lost a fifth of its value since the announcement was made.

Banks that were exposed to the Dubai World debt also saw their shares increasing. Shares in HSBC, Standard
Chartered, Banco Santander, Barclays, and Lloyds all rose.

Dubai World is expected to sell off some of its extensive assets to help repay the debt. The conglomerate has
shares in port operators around the world.

However, a source close to the Dubai government told reporters in a conference call that there were no strings
attached to the Abu Dhabi bailout.

“There are no conditions,” the source was quoted as saying by Reuters. “This is a government-to-government
fund, the terms of that fund are internal to the government of Abu Dhabi and Dubai.”

Jim Krane, author of “City of Gold: Dubai and the Dream of Capitalism,” said that it was “highly unlikely” that the
bailout came without any conditions.

“There were probably around four people in the room during the discussions and the stated conditions are
probably known by them alone,” said Krane.

“Dubai has always had an independent foreign policy and has business ties with both Iran and Israel. It could be
that a concession of this bailout is that Dubai has far less autonomy over its foreign policy, and could become a
closer part of the union of emirates.”

The seven-member UAE has its federal government in the emirate of Abu Dhabi—which owns 9 percent of the
world’s oil supply. Dubai, by comparison, has built its economy on its re-export and service sectors

Historically, the ruling families of both emirates belong to the same Bani Yas tribe, and feudal loyalties persist.

Dubai has in recent years received several other handouts from Abu Dhabi, but the amount of negative publicity
in the last two weeks may have strained relationships to breaking point between the two emirates, said Krane.

“Abu Dhabi likes to quietly exude the impression of stability, so this must have been excruciatingly embarrassing
for the rulers there.”

Several Abu Dhabi companies saw their ratings slashed by Moody’s in recent weeks, owing to fears that their
assets were not sovereign-backed.

Two months ago, Sheikh Mohammed Bin Rashid al-Maktoum, ruler of Dubai, told those speculating over the
relationship between the two emirates to “shut up.”
Ss
Dubai World
From Wikipedia, the free encyclopedia

Not to be confused with  Dubailand.

Dubai World
‫دبي العالمية‬

Type Investment company(Government-owned)

Industry Diversified Investments

Founded 2 July 2006

Headquarters Dubai, United Arab Emirates

Area served 30 cities in 12 countries

Key people Sultan Ahmed bin Sulayem –Chairman

Products Investment

Revenue ▲ 3 billion USD (2008)

Operating income ▲ 800 million USD (2008)

Net income ▲ 200 million USD (2008)

Owner(s) Public

Employees 5000+

Subsidiaries Dubai Ports World

Jafza
 Nakheel

Dubai Drydocks

Maritime City

Dubai Multi Commodities Centre

Tamweel

Tejari

Limitless

Leisurecorp

Istithmar

Island Global Yachting

Inchcape Shipping Services

Website www.dubaiworld.ae

Dubai World (Arabic: ‫ )دبي العالمية‬is an investment company that manages and supervises a portfolio of
businesses and projects for the Dubaigovernment across a wide range of industry segments and projects
that promote Dubai as a hub for commerce and trading. It is the emirate's flag bearer in global investments
and has a central role in the direction of Dubai's economy. Assets include DP World which caused a storm
when trying to take over six US ports, and Nakheel, its property arm, which built The Palm Islands and The
World developments, andIstithmar World, its investment company. It is chaired by Sultan Ahmed bin
Sulayem.

Contents
 [hide]

1 History

2 2009 debt

standstill

3 Debt Deal

4 Managed

companies

5 References

[edit]History

Dubai World was established under a decree ratified on 2 March 2006 by Sheikh Mohammed bin Rashid Al
Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai. He also
holds the majority stake in Dubai World.

On 2 July 2006, it was launched as a holding company with more than 50,000 employees in over 100 cities
around the globe. The group now has extensive real estate investments in the United States, the United
Kingdom and South Africa. Dubai World made headlines in March 2008 after its chairman, Sultan Ahmed
bin Sulayem, threatened to take the fund's money out of Europe.[1] Dubai World's threats came shortly after
the European Union attempted to lay out "a set of principles for transparency, predictability and
accountability" for sovereign wealth funds.[2]

On November 26, 2009, Dubai World proposed to delay repayment of its debt [3], which raised the risk of the
largest government default since the Argentine debt restructuring in 2001. Dubai World, the investment
vehicle for the emirate, asked to delay for six months payment on $26 billion of debt. [4][5][6] The extent of the
debt rattled many markets causing many indices to drop; including oil prices. U.S. stocks fell sharply but
rebounded from their lows as investors concluded that the damage might be contained. The Dow Jones
industrial average lost about 155 points, or roughly 1.5 percent, in a shortened trading day, and other stock
averages also sank. Oil prices plunged as much as 7 percent before recovering some ground later in the
day.

[edit]2009 debt standstill

With the onset of the financial crisis of 2007–2010, Dubai's real estate market declined after a six-year
boom. On November 25, 2009, the Dubai government announced that the company "intends to ask all
providers of financing to Dubai World and [its subsidiary] Nakheel to 'standstill'[7] and extend maturities until
at least 30 May 2010".[8] The company has laid off 10,500 employees worldwide. [9] At that time, Dubai
World had debts of $59-billion, accounting for nearly three-quarters of the emirate's US$80-billion debt.
[10]
 This includes a US$3.5-billion loan which the company was unable to repay by its December deadline. [11]

In response to the government announced moratorium of Dubai World's debts, both Moody's and Standard

& Poor's Investors Services heavily downgraded the debt of various Dubai government-related entities with
interests in property, utilities, commercial operations and commodities trading. In Moody's case, the
downgrade meant that the affected agencies lost their investment grade status. [12]

Concerns over the fallout from Dubai's debt problems contributed to the main European stock indexes
falling over 3% on 26 November. This was followed by drops in Asian stocks on 27 November. However
the European stock markets rebounded as investors' fears subsequently subsided as they decided the
estimated debt wasn't big enough to trigger a systemic failure in global financial markets. "For now, the
market is taking the view that the Dubai debt issue may be a storm rather than a hurricane," said Jane
Foley, a research director at Forex.com in London.[13][14][15][16] The American markets were closed on 26
November but American stocks fell on the afternoon of 27 November as similar fears rattled Wall Street in
a thinly-traded half-day session. The Dow Jones industrial average (INDU) fell 155 points, or 1.5%, after
closing 25 November at a 13-month high. The Dow had lost 233 points in the morning. [17]Also, concerns of
the crisis led to a sharp rally in the U.S. dollar and Japanese Yen against most other world currencies as
these currencies had been perceived as "safe haven" currencies during times of uncertainty. [18]

An unnamed senior official told news agencies on November 28 that Abu Dhabi, the wealthy capital of
the United Arab Emirates, would "pick and choose" how to assist Dubai World. "We will look at Dubai's
commitments and approach them on a case-by-case basis," the official told the Reuters news agency by
telephone, adding: "It does not mean that Abu Dhabi will underwrite all of their debts."
Meanwhile India's central bank governor said an assessment of the impact of Dubai's debt problems was
needed before deciding on a response. "We should not react to instant news like this. One lesson of the
crisis is that we must study the developments, and I think we must measure the extent of the problem there
and how it impacts India," Duvvuri Subbarao said in Hyderabad, India.[19]

A public statement on 30 November 2009, of the Dubai Finance Department Director-General, that the
Dubai World debts are "not guaranteed by the government" appears to correctly reflect the legal position,
as the Dubai Government were not required by the lenders, and nor did they provide, any contractual
guarantees in respect of the Dubai World debt:

Officials in the United Arab Emirates tried on December 1 to calm investors and the public over the Dubai
World debt crisis, and the company itself said it was seeking to renegotiate only the $26 billion in
obligations held by its troubled real estate developer, Nakheel. It also said that it had hired Moelis &
Company, the investment boutique headed by Ken Moelis, a formerUBS banker, to be its
adviser. Rothschild is also advising Dubai World. Shares in Dubai and Abu Dhabi were down for a second
day, with both key indexes declining about 6%. On November 30, shares dropped in Dubai and Abu Dhabi
by 7.3% and 8.3%, respectively.[20]

On December 14, 2009 the Dubai government received $10 billion in surprise aid from Abu Dhabi for debt-
laden Dubai World, which said it would use $4.1 billion of it to repay its Nakheel unit's Islamic bond
maturing on the same day.[21]

As of 24 January Dubai World's property assets have exceeded USD 120 billion, so that it could cover its
debt of USD 57 billion.[22]

[edit]Debt Deal

On May 20, 2010 Dubai World said that it had reached an agreement "in principle" with most of its bank
lenders to restructure debt worth $23.5bn (£16.4bn). It would be left with debts of $14.4bn after the
restructuring. But the deal must still be approved by other banks that were not involved in the negotiations.
The terms of the restructuring, include converting $8.9bn of government debt into equity. The government
of Dubai and Dubai World had tabled this offer to bank lenders in March 2010 after three months of
negotiations.[23]

Dubai World to receive $9.5 billion in government aid

Thursday, March 25, 2010

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The government of Dubai announced that it intends to provide $9.5 billion to Dubai World to allow the
government-owned investment company to restructure its debt.

The announcement comes as part of Dubai World's plan to restructure more than $23 billion of debt,
including converting nearly $9 billion of debt into equity, after its collapse last fall. The package includes $8
billion of funding to Nakheel, Dubai World's real estate subsidiary, as well as $1.5 billion to Dubai World as
a whole. The restructuring plan also seeks to, within eight years, repay all of Dubai World's creditors.

According to the government of Dubai, $5.7 billion of the aid was from a former $10 billion loan to Dubai
World, with the remainder being internally funded. The plan would transfer ownership of Nakheel, formerly
a subsidiary of Dubai World, to the direct control of the Dubai government.

Response to the deal was largely positive, with one analyst saying the move "boosts sentiment because
this is a strong commitment." Christopher Davidson, author of books on Dubai and Abu Dhabi, said that
while the new funding would "keep the wolves outside the gates a little longer," the government could not
be the sole funder of Dubai World and Nakheel.

Emirate Offers to Help Restructure Dubai World

By LANDON THOMAS Jr. and DAVID JOLLY
Published: March 25, 2010

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Dubai moved on Thursday to recapitalize two companies at the heart of a financial crisis

that shook global markets last autumn, saying that it would inject up to $9.5 billion into
Dubai World and its property subsidiary and would seek to repay all creditors within
eight years.
Enlarge This Image

Matthias Seifert/Reuters

The Atlantis hotel in Dubai, co-developed by Nakheel, Dubai World's real estate arm. Under the financing plan, Nakheel
will be directly owned by Dubai.
Enlarge This Image

Karim Sahib/Agence France-Presse — Getty Images

Spending in the emirate of Dubai has been lavish, partly because of outside lenders.
While it was expected that, after Abu Dhabi’s $10 billion loan to Dubai, an acceptable
package in some form would be presented to creditors, the size and scope of Dubai’s
offer took analysts by surprise.

It would inject $8 billion into Dubai World’s debt-plagued real estate arm, Nakheel, and
$1.5 billion into Dubai World itself, and convert into equity about $10.1 billion of these
entities’ outstanding obligations to the government of Dubai. The offer makes it clear
that these two symbols of the emirate’s heady rise will not be allowed to fail.

What remains to be seen, however, is the extent to which once-generous outside lenders
will continue to finance the emirate’s lavish spending.

“The Dubai authorities were left with no other option but to take responsibility — finally
— for what had always been portrayed to investors as a state-backed entity,” said
Christopher Davidson, an author of separate books on Dubai and Abu Dhabi. “In the
short term, this will keep the wolves outside the gates a little longer. But ultimately all of
the funding needed to keep Nakheel going will have to come from external sources.”

In its statement, the Dubai government said that $5.7 billion of the cash infusion came
from the original $10 billion loan and the rest, $3.8 billion, came from internal
resources. It remained unclear where these internally generated funds came from.

Bankers in Dubai said that as a result, write-downs on loans would be less than
previously forecast. They said that banks with significant exposure to Dubai, which
include Standard Chartered, HSBC Holdings, Royal Bank of Scotland and Lloyds, might
respond to the offer within a month or so.

The package was presented to bankers Wednesday in meetings in Dubai.

Last November, confusion, uncertainty and a brief spasm of investor panic ensued when
the government of Dubai abruptly notified its creditors that it would delay interest
payments on the $23 billion in debt that Dubai World owed creditors.

The thought that Dubai, and by association its oil-rich neighbor Abu Dhabi, might not
back the mountains of debt taken on by Dubai World and other government-sponsored
entities came as a shock to banks and hedge funds everywhere. It contributed to a
significant extent to the increased sensitivity that investors now have regarding the
ability of sovereign countries to pay back their debts, especially in Europe.

The harsh market reaction took government officials in the United Arab Emirates by
surprise, and steps were quickly taken to ensure that Dubai World and its subsidiaries
would not go bankrupt, starting with a payment earlier this year to holders of Nakheel’s
bonds.

In its statement, Dubai made clear that changes would come at Dubai World, through
sales of noncore operations and other restructuring initiatives.
Nakheel, whose highly leveraged luxury developments — including artificial islands off
the coast — came to symbolize Dubai’s brash aspirations, will work on a restructuring
agreement with its banks. It is now expected to fulfill its obligations to the holders of its
Islamic bonds, or sukuks, which come due in 2010 and 2011.

While analysts say it is likely that banks will take the deal, as they want to maintain ties
with the United Arab Emirates, trade creditors may be less willing to accept a similar
“haircut,” or markdown, on their positions. In the statement, Dubai addressed this issue
by saying that trade creditors would be offered a “significant cash payment and a
tradable security.”

Nakheel will now be owned directly by the government, not Dubai World.

While the real estate market remains weak in Dubai and growth is nowhere near as
buoyant as it was before the crisis, the restructuring proposal is likely to give comfort to
lenders and investors, many of which have forsworn the region because of the
uncertainty surrounding Abu Dhabi’s commitment to Dubai.

Still, Dubai public entities like Dubai World have experienced a wave of downgrades by
credit ratings agencies and, dependent as they are on further borrowing to finance their
investments, will have to scale back their spending ambitions in the coming years.

Stocks rallied in Dubai on Thursday, with the benchmark DFM general index adding 4.3
percent, and the cost of insuring the emirate’s bonds with credit-default swaps fell.

The shares of Royal Bank of Scotland, Standard Chartered and HSBC Holdings, which
have significant exposure to Dubai, all rose in London.

According to a Dubai government official who has played a leading role in working with
the companies on their restructuring proposals, the reception to the proposal Thursday
from banks so far has been positive.

“We have every reason to believe the discussions are going well,” said the official, who
was not identified because of government policy. “I feel we are on the right track.”

Dubai, one of the seven members of the United Arab Emirates, has negligible oil
reserves, unlike Abu Dhabi. Under Sheik Mohammed bin Rashid al-Maktoum, its ruler,
the tiny principality has sought to modernize its economy by transforming itself into a
regional financial and services hub.
But as in the United States and Britain, property-sector lending grew unsustainably fast,
and Dubai had to ask Abu Dhabi for help in renegotiating its debt. On Dec. 14, Abu
Dhabi obliged, pledging $10 billion to help Dubai repay a maturing bond.

Landon Thomas Jr. reported from Vilnius, Lithuania, and David Jolly from Paris.
Chris Nicholson contributed reporting from Paris.

A version of this article appeared in print on March 26, 2010, on page B1 of the New York edition.