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
ebooksA celebration of British elections
  • Get to the point
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

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power