Special Features
What is Dubai World?
Dubai World is an investment company that manages and supervises a portfolio of businesses and projects for the Dubai government across a wide range of industry segments and projects that promote Dubai as a hub for commerce and trading. It is the emirate’s flag bearer in global investments and has a central role in the direction of Dubai’s economy.Assets include DP World which caused a storm when trying to take over six US ports, and Nakheel, its property arm, which built The Palm Islands and The World developments. It is chaired by Sultan Ahmed bin Sulayem.
Dubai World was established under a decree ratified on 2 March 2006 by Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai. He also holds the majority stake in Dubai World.
On 2 July 2006, it was launched as a holding company with more than 50,000 employees in over 100 cities around the globe. The group now has extensive real estate investments in the United States, the United Kingdom and South Africa. Dubai World made headlines in March 2008 after its chairman, Sultan Ahmed bin Sulayem, threatened to take the fund’s money out of Europe.Dubai World’s threats came shortly after the European Union attempted to lay out "a set of principles for transparency, predictability and accountability" for sovereign wealth funds.
On November 26, 2009, Dubai World proposed to delay repayment of its debt, which raised the risk of the largest government default since the Argentine debt restructuring in 2001. Dubai World, the investment vehicle for the emirate, asked to delay for six months payment on $26 billion of debt. The extent of the debt rattled many markets causing many indices to drop; including oil prices. U.S. stocks fell sharply but rebounded from their lows as investors concluded that the damage might be contained. The Dow Jones industrial average lost about 155 points, or roughly 1.5 percent, in a shortened trading day, and other stock averages also sank. Oil prices plunged as much as 7 percent before recovering some ground later in the day.
With the onset of a global recession, Dubai’s real estate market declined after a six-year boom. On November 25, 2009, the Dubai government announced that the company "intends to ask all providers of financing to Dubai World and Nakheel to ’standstill’ and extend maturities until at least 30 May 2010". The company has laid off 10,500 employees worldwide as the company restructures with the help of Deloitte consultants. At that time, Dubai World had debts of $59-billion, accounting for nearly three-quarters of the emirate’s US$80-billion debt. This includes a US$3.5-billion loan which the company is unable to repay by its December deadline.
In response to the government announced moratorium of Dubai World’s debts, both Moody’s and Standard & Poor’s Investors Services heavily downgraded the debt of various Dubai government-related entities with interests in property, utilities, commercial operations and commodities trading. In Moody’s case, the downgrade meant that the affected agencies lost their investment grade status.
Concerns over the fallout from Dubai’s debt problems contributed to the main European stock indexes falling over 3% on 26 November. This was followed by drops in Asian stocks on 27 November. However the European stock markets rebounded as investors’ fears subsequently subsided as they decided the estimated debt wasn’t big enough to trigger a systemic failure in global financial markets.
For now, the market is taking the view that the Dubai debt issue may be a storm rather than a hurricane.
