Wikinvest Wire

More concerns about the Dubai debt

Friday, February 12, 2010

It could be that the world's tallest skyscraper - the Burj Khalifa - isn't the only thing in Dubai that's shutting down (see this item from a few days ago) as, earlier today, MarketWatch reported on new fears about the Dubai debt restructuring plan.

Dubai debt concerns re-emerged Friday as the cost of protection against a default by the Persian Gulf emirate climbed to the highest level since November, according to data provider Markit.

The price of credit default swaps on Dubai government debt jumped to 630 basis points on Friday, up from 592 on Thursday, Markit data show. These CDS prices were last above the 630-point mark on Nov. 27, when they traded at 634 basis points.

Late last November, investors were concerned that state-owned conglomerate Dubai World and its Nakheel property-development unit couldn't meet imminent debt obligations. Dubai World said at the time that it wouldn't pay interest until May as it sought to reorganize more than $20 billion of debt.

CDS prices dropped after Abu Dhabi lent Dubai $10 billion to ease the cash crunch. However, broader sovereign-debt concerns have increased in recent weeks as Greece struggles with a large fiscal deficit and surging borrowing costs.
Apparently, their plan to "extend and pretend" isn't working out as planned - at least in the eyes of those who are buying and selling credit default swaps.

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Anonymous said...

It seems like the Tallest Building Curse strikes again.
As soon as a country completes the world's tallest building, it falls into a slump -- Empire State Building in 1931, Sears Tower in 75, Petronas Towers before the Asian Crisis of 97 and Burj Dubai/Khalifa just as the city-state's house of cards took a tumble.

Hu Flung Pu said...

There is a financial logic to the "Tallest Building Curse." It's not economical to build most skyscrapers. I've forgotten the details, but above a certain floor count, the marginal costs of building each additional floor outweigh the benefits. Consequently, the only time that a huge skyscraper can get financing is when banks are overly aggressive. This period, of course, is followed by the downturn, just as night follows day.

getyourselfconnected said...

They should just ban CDS trading if it goes against "financial stability" that way, oh wait, they are looking into it. You cannot make this stuff up anymore.

al safa said...

It is the difficult situation for dubai.They have to deal with this in a prudent way.Then only recovery will be possible.

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