As international and regional banks began talks with Dubai World on restructuring its $26bn of debt early this week, concern over another major state-backed conglomerate was mounting. Dubai Holding, which along with Dubai World accounts for 60%-70% of Dubai’s overall debt according to Hassan Heikal of EFG-Hermes, may be in trouble. Bonds in the group, whose ventures include the sail-shaped Burj Al Arab hotel, were trading at just 55 cents on the dollar last week.
It’s not clear whether Dubai Holding is making enough money to service its debts of $2bn next year and $2bn in 2011, say Jenny Davey and John Arlidge in The Sunday Times. Analysts reckon that government plans to merge Dubai Holding’s property arm with “the only robust local developer left”, Emaar Holdings, is an attempt to reduce the group’s huge debt burden, while one official says the company is “a bloody mess”. Emaar has in any case since rejected the deal.
Meanwhile, two defaulting Saudi conglomerates, Ahab and Saag Group, who owe $20bn, seem to be giving local creditors preferential treatment over international ones in their restructuring process, says Patrick Hosking in The Times. That violates the principle that all creditors with similar securities should be treated equally.
This row could “do as much damage to the Gulf’s bruised financial reputation” as the Dubai World shock. The whole region “is alive with actual and threatened acts of default”, says Jeremy Warner on Telegraph.co.uk.
Once one firm runs away from its debts, others will follow. And that suggests more losses for British banks.