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Deleveraging Dubai

The news hit the world on the eve of the Eid-ul-Azha holidays – Dubai was on the verge of defaulting on part of its debt servicing payments amounting $26 billion against a total of $ 59 billion of liabilities. Talks of debt restructuring and speculation over the extent to which Abu Dhabi would assist dominated the international headlines. World markets plunged as international banks calculated their total exposure to Dubai Inc. The UAE bourses have been in consistent decline falling by almost 7% since markets opened as investor confidence evaporated. Despite the much touted assumption that Dubai’s oil rich neighbour would provide carte blanche assistance to Dubai, Abu Dhabi has stated that it will not fully guarantee Dubai’s exorbitant debts rather, it will selectively ‘pick and choose’ which projects to rescue.
Overall market sentiment lifted as the debt-ridden entity of the Dubai government – Dubai World began talks with its creditors on debt rescheduling, thus quelling fears of an outright default. In the meanwhile, the Dubai government is doing all it can to prop up investor confidence as well as ring-fence its key assets (P&O Ferries, Emirates Airlines etc.) by assuring that the re-structuring only relates to Dubai World and not its other entities which remain on a strong financial footing.
The UK banking sector has the greatest exposure to the region, with HSBC leading the pack with an estimated $17 billion described by analysts as the “largest absolute exposure” in the UAE. Others include Standard Chartered, Barclays and ABN AMRO. However the international rating agency, Fitch Ratings has stated that UK banks will remain unaffected by the current crisis.

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