Dubai World debacle could have ripple effect

dubai_palm-island-photo.jpgTHE NEWS that government-owned conglomerate Dubai World would seek to delay payments on its debt rocked global financial markets.

Bourses plunged worldwide, led by heavy losses in European and Asian banks, which have the most exposure to Dubai World’s more than $60bn in total debt.

While the situation has so far been deemed mangeable, the potential default on Dubai World’s debt could have ripple effects.

Already it’s going to be more difficult for governments in the region to borrow money at attractive rates – sovereign bonds plunged on the news.

Interestingly, as the world focuses its attention on the region, Our ICIS Top Power Player in 2009 is from Abu Dhabi – Dubai’s oil-rich neighbor and capital of the United Arab Emirates.

While Abu Dhabi eschewed the breakneck spending of Dubai on local real estate projects like indoor ski resorts and palm-shaped islands, Dubai-based companies comprise about 30% of Abu Dhabi banks’ loan books. Any crisis sparked by the Dubai World debacle could crimp financing for other expansion plans in the region.

However, the full impact has yet to play out. Abu Dhabi’s International Petroleum Investment Co. (IPIC) is seeking to expand aggressively. It picked up Canada’s NOVA Chemicals on the cheap. What will be next?


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