“WSJ.com / Dubai’s Shock May Not Be Last PDF”

Comment:Will this be yet another public bailout of the private sector? Sure Dubai World only has $60 billion of debt which is small in the global debt market, and this is in the small country of the United Arab Emirates (UAE), but the wider ranging impact of a major restructuring or partial default are large. The creditors of Dubai World are truly global; U.K. banks hold approximately $5 billion, and Europe at large around $40 billion. At stake here is not only the reputation of Dubai and the UAE, but riskier frontier markets. The appetite for risk has reemerged over the past nine months, and if this restructuring is a sign of things to come then that appetite could quickly shrink. The dollar immediately strengthened on word that Dubai World was extending the term of the $3.5 billion in debt due at the end of the year.

Banks, insurance companies and automakers worldwide saw public financial support over the past 18 months. AbuDhabi, Dubai oil rich neighbor, will have to decide if it wants to lend support to Dubai World. Dubai World is systematically important as the emirate has far fewer oil reserves than its neighbors and has planned on making Dubai THE destination in the Middle East.

Further Reading:  NYTimes.com / A Quaking Brings No Collapse