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Dreams built upon shifting sands

Paul Kennedy

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I used to go out to Dubai in the early 80's, not then a tourist destination but rather a trading state, visited five years ago for a couple of days, how it has changed and alas full of chavs. Now it seems the dream is turning to a financial nightmare with some UK banks looking at substantial losses. Following report from The Times:


The Government of Dubai said today that it will not stand behind its wholly-owned subsidiary Dubai World, prompting fears that the company?s creditors could lose billions of dollars.


Today's comment, from Abdulrahman al-Saleh, the director general of Dubai?s Department of Finance, effectively confirms that country does not have enough money to repay Dubai World?s $60 billion of liabilities. Deloitte, the accountancy firm, has been called in to restructure the giant business.


Last week, the state-owned conglomerate sought a six-month standstill on repaying its debts.


Dubai World's borrowings include a $3.5 billion Islamic bond that was due to be repaid by Nakheel, the property developer behind the Palm Jumeriah islands, in two weeks.


Many creditors had assumed that the structure of Islamic bonds implied there was state backing for this type of financing and Dubai?s failure to support the Nakheel debt could have damaging implications for the wider Islamic market.


UK banks are among 70 institutions to have loaned Dubai World money in recent years as the company grew rapidly and bought foreign assets such as the Turnberry golf course in Scotland and P&O ports. Dubai's Department of Finance said creditors will be affected in ?the short term? by the Dubai World's restructuring.


Royal Bank of Scotland (RBS) has arranged $2.3 billion of loans for Dubai World since 2007, although it is not known how much the bank could lose if the company defaults.


The Financial Services Authority, the City watchdog, is understood to be discussing possible exposure to Dubai World losses with the UK banks."

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