Dubai expansion fuelled by years of cheap money

Worries over Dubai's ability to pay its debts come after years of expansion fuelled by cheap money - bringing a huge potential headache for UK banks.

State-owned developer and investment firm Dubai World's interests range from Scotland's historic Turnberry golf course to a series of UK ports through its acquisition of P&O in 2006 at the less glamorous end.

The company also owns Nakheel, which is behind Dubai's lavish Palm man-made islands developments and works with British companies such as Balfour Beatty.

But Dubai World has racked up a 60 billion dollar (£36.8 billion) debt pile to pay for it all - so any suggestion that it could not pay back these borrowings was always likely to prompt panic.

This arrived late on Wednesday evening from Dubai's department of finance, which said Dubai World would ask all providers of financing to the business and Nakheel for "standstill" repayments until the end of next May.

The announcement - pushed out on the eve of an Islamic holiday - caused predictable chaos in markets, as well as prompting downgrades from rating agencies for debt issued to the company.

Although individual figures for Dubai are not available, according to the latest figures from the Bank for International Settlements, UK banks had a 50.2 billion US dollar exposure (£30.5 billion) to the United Arab Emirates at the end of June.

This is by far the biggest share of the 88.6 billion US dollars (£53.9 million) which European banks as a whole have lent the region.

The developer under the spotlight has an investment portfolio extending across 100 different cities - prompting its boast that the "The Sun Never Sets on Dubai World".

DP World is one of the largest marine terminal operators in the world owning businesses such as Southampton Containers and a share of Tilbury Container Services in Essex.

As well as Scotland's premier golfing resort, the firm's Leisurecorp subsidiary owns a network of US courses through Troon Golf.

The ultimate owner of the business and Dubai's ruler, Sheikh Mohammed Bin Rashid Al-Maktoum, has already turned to its oil-rich neighbour Abu Dhabi for a handout once this year - heightening concerns over whether Abu Dhabi would put its hand in its pocket again.

The bond sale in February came after months of denial that the economic downturn was having an impact on the state, although a steady stream of expatriate workers have been heading home since the turn of the year amid job losses while property prices have collapsed.

Pressure to pay the debts could now put a host of other well-known names owned by Dubai's intricately-linked network of sovereign wealth funds on the block.

Dubai International Capital, a subsidiary of the Dubai Holdings sovereign wealth fund, has a stake in Merlin Entertainments, the firm behind attractions such as Madame Tussauds and Legoland. Budget hotel chain Travelodge and engineering firm Doncaster are also in the portfolio.

The Investment Corporation of Dubai's investment portfolio meanwhile owns airline Emirates, as well as the Borse Dubai, the exchange which is the biggest shareholder in the London Stock Exchange.

Altium Securities' Ian Williams sees a parable for modern times in the current woes of Dubai and the dangers of taking on too much borrowing.

He said: "The biggest...takeaway from the Dubai story is that, despite the months of unprecedented monetary stimulus, debt remains a structural concern.

"Investors need to remember that central banks have been forced to use the policy approach that arguably caused these problems in the first place: excessively loose money. That's a short-term fix rather than a long-term cure."

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Recruitment Genius: Experienced Financial Advisers and Paraplanners

Negotiable: Recruitment Genius: This extremely successful and well-established...

Guru Careers: FX Trader / Risk Manager

Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...

Guru Careers: Investment Writer / Stock Picker

Competitive (Freelance) : Guru Careers: An Investment Writer / Stock Picker is...

Day In a Page

How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map
Lionel, Patti, Burt and The Who rock Glasto

Lionel, Patti, Burt and The Who rock Glasto

This was the year of 24-carat Golden Oldies
Paris Fashion Week

Paris Fashion Week

Thom Browne's scarecrows offer a rare beacon in commercial offerings
A year of the caliphate:

Isis, a year of the caliphate

Who can defeat the so-called 'Islamic State' – and how?
Marks and Spencer: Can a new team of designers put the spark back into the high-street brand?

Marks and Spencer

Can a new team of designers put the spark back into the high-street brand?
'We haven't invaded France': Italy's Prime Minister 'reclaims' Europe's highest peak

'We haven't invaded France'

Italy's Prime Minister 'reclaims' Europe's highest peak
Isis in Kobani: Why we ignore the worst of the massacres

Why do we ignore the worst of the massacres?

The West’s determination not to offend its Sunni allies helps Isis and puts us all at risk, says Patrick Cockburn
7/7 bombings 10 years on: Four emergency workers who saved lives recall the shocking day that 52 people were killed

Remembering 7/7 ten years on

Four emergency workers recall their memories of that day – and reveal how it's affected them ever since
Humans: Are the scientists developing robots in danger of replicating the hit Channel 4 drama?

They’re here to help

We want robots to do our drudge work, and to look enough like us for comfort. But are the scientists developing artificial intelligence in danger of replicating the TV drama Humans?
Time to lay these myths about the Deep South to rest

Time to lay these myths about the Deep South to rest

'Heritage' is a loaded word in the Dixie, but the Charleston killings show how dangerous it is to cling to a deadly past, says Rupert Cornwell
What exactly does 'one' mean? Court of Appeal passes judgement on thorny mathematical issue

What exactly does 'one' mean?

Court of Appeal passes judgement on thorny mathematical issue