Just a year after the global downturn derailed Dubai's explosive growth, the city is now so swamped in debt that it's asking for a six-month reprieve on paying its bills — causing a drop on world markets Thursday and raising questions about Dubai's reputation as a magnet for international investment.Thing is, Dubai has NO OIL! And that means no collateral to use as a cushion. If they go into default, how will that affect the banks. And, more importantly, how will it effect all of us?
The fallout came swiftly and was felt globally after Wednesday statement that Dubai's main development engine, Dubai World, would ask creditors for a "standstill" on paying back its $60 billion debt until at least May. The company's real estate arm, Nakheel — whose projects include the palm-shaped island in the Gulf — shoulders the bulk of money due to banks, investment houses and outside development contractors.
In total, the state-backed networks nicknamed Dubai Inc. are $80 billion in the red and the emirate needed a bailout earlier this year from its oil-rich neighbor Abu Dhabi, the capital of the United Arab Emirates.
FYI, I'm still not back in the stock market. Recent gains made that decision seem foolish but maybe not. I'm waiting for the commercial real estate market to bottom out and see where the banks and economy land.