Dubai, Abu Dhabi, Banks and Fear

We had predicted that the fear of default by Dubai's various property companies on $26 billion would prove to be unfounded, and now Dubai has shown us to be correct. Dubai new proposal offers what must be viewed as a very lender-friendly deal on the Dubai World and Nakheel debt. Dubai now offers to convert its $10.1 billion debt claims on Dubai World and Nakheel into equity, thus subordinating its claim to other creditors. In addition, Dubai will inject $9.5 billion of fresh capital of which $3.8 billion will come from its own resources and $5.7 billion from a loan from Abu Dhabi. This can only mean that Abu Dhabi approves of and supports this newest proposal. Going even further (in the right direction) Dubai says that if the lenders approve the deal, then holders of Nakheel's Sukuk bonds (2010 & 2011 maturities) will be paid in full and on time. All of this goes to the point that UAE is not interested in having anything derail its plans, not a small part of which have Dubai as the new "Beirut" for European and Gulf residents and an important financial and business center for the region.

Dubai Default Coming? Black Swan?

No Black Swan here-old news and relatively insignificant with respect to size. Look at the $17 trillion CRE, LBO/takeover and bank balance sheet debt that matures during the next few years and Dubai looks pretty small. Anyway, there have been Sovereign defaults in the past, and the markets all got upset so we can probably look for the same here, but I suspect a mild case. I'll bet that Abu Dhabi provides a solution, with a little pain. Especially since I see that investment in Dubai is continuing and the property market is moving towards stability.