The crisis struck Dubai on Wednesday, the 25th of November. On the eve of Eid religious festival, the Dubai government announced that one of its main investment vehicles, 'Dubai World', could not pay its bills, a staggering 80 Billion debt .
Something that sent shock waves like a ripple effect and ones that are still reverberting all around the world, as people grapple with the very many and possibly catastrophic consequences that this would entail for many people directly as well as indirectly conceerned.
Things looked very bad indeed, until just a few hours ago, when Abu Dhabi has belatedly chosen to step in and announce that it would aid Dubai as much as was possible, having shed its earlier very obvious reluctanace in that tersely worded statement which had read as "on a case to case" basis.
Today, the real problem, as shocked investors see it, is that this is as a government at risk of bankruptcy, not merely a corporation.The city state that had grown too fast for its own good, is finally at the cross roads.One from where it must either swim or at the very possible 'worst case' scenario, sink.
The writing was finally on the wall, and most of us who have visited Dubai in the last few years had anticipated this, but not in the kind of very large magnitude that has now been officially announced.Realistically, if we take a brief moment to analyze it, much of Dubai World’s problems can be traced to its property subsidiary, Nakheel, the company that had branded Dubai as a glitzy, 'architectural free-for-all'. It owns, among other things, three Palm-like islands and a group of 300 islands shaped like a map of the world.
That very same Palm Deira, one of the world’s largest man-made islands, now seems a sad abandoned project, which is what I can personally testify to. On a fairly recent flight to Istanbul, when we flew directly overhaed, it was clearly visible... half-built, disconnected from the land and looking grey and redundant.
This however, is not the only project that has suffered. The construction frenzy, fuelled by the biggest surge in oil prices in a generation, has pretty much come to ground to a complete halt, with machines and bulldozers lying exactly as the companies and workers have left them to rot..
By last week, Nakheel was on the brink of collapse, with a $3.5 billion bond due to mature on December 14. Bondholders now clearly fear the worst.
The emirate’s difficulties are not confined to Nakheel, however. Unless Dubai’s debt problems can be solved, it could be forced to offload many of its huge investments in a fire sale.
Like the leveraged companies that are being exposed by the recession, Dubai had borrowed beyond its means to fund its building boom.Then gone manay steps ahead and decided to buy up what were considered to be great future investments. This portfolio consists of what were at the time of their purchase, considered to be plum assets. The Turnberry golf course in South Ayrshire and paid £50m for the QE2 liner. In addition to luxury hotels such as the Mandarin Oriental in New York.And what else, that is not in the public domain?
Then followed the pink slips and job losses, topping all that had already been said and done, people home for their holidays now simply being sent text messages told that they are now not required to come back, so would they just please just stay back in Trivandrum, Chennai, Mumbai, or wherever they were.
The next few months, particularly December will see the direction that Dubai is headed in. But for those other nations that watch from the sidelines, there is a very great learning.
A bubble which grows too fast, will burst...sometimes sooner...or sometimes later...
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