To Buy or not Dubai?

Dear Reader,

This week while looking through the Financial Times and Bloomberg I found an article about Dubai that caught my interest. The article in the Financial Times is called "Dubai plans to sell $1bn in bonds" and it talks about how Dubai is very likely to give out its first bond issue since the debt standstill last October (Dubai's government last sold bonds in October, when the Department of Finance raised $1.93 billion from five year, fixed-and floating-rate Islamic notes). At the moment Dubai has a debt mountain of about $109bn and it was already "saved" last year by its neighboring emirate Abu Dhabi who lent Dubai $20bn to stave off fears of default. 

Many people believe that if this bond sell really happens then Dubai will be on the best way of getting itself out of the gutter. This step is extremely important for Dubai since they are trying to get investors back on board, not an easy task with all the debts the emirate is faced with. In May Dubai World, which is an investment company that supervises a portfolio of businesses and projects for the Dubai government and are also in charge of The Palm Islands and The World reached a deal with seven leading creditor banks representing 60% by value of $14.4bn owed by the conglomerate's holding company. This offers to pay back the principal over five to eight years on sub-commercial interest rates. 

http://thephoenix.com/blogs/blogs/phlog/dubai-palm-islands.jpg

HSBC, Deutsche Bank and Standard Chartered have apparently been hired to manage the sale after securing agreement among almost all of the creditors for a restructuring proposal on $23.5bn of debts to the government-owned Dubai World conglomerate. (Although spokesmen for HSBC, Deutsche bank and Standard Chartered all declined to comment). 

http://www.eikongraphia.com/wordpress/wp-content/TheWorldDubai.jpg

Now the question crossing my mind is why these banks are accepting to buy Dubai's bonds when they are clearly not very safe and there are much better investment opportunities out there. I feel as though many people think they have to "save" Dubai from the mess they have put themselves in. I personally think that this situation was quite inevitable and Dubai was simply a bubble waiting to burst, it was like an impulsive infant who tried to run before it could walk. 

It is obvious that with all the money that was invested in real estate projects such as The Palm Islands, The World and the Burj Dubai (Khalifa) everyone surely wants to save the savable, but when are we going to get tired of saving everything and everyone? And is saving really the answer or is it simply a bad attempt of trying to glue the broken pieces back together? Shouldn't we learn from this that it is better to think before we act, or in Dubai's case to think before building thousands of buildings and making hundreds of projects without having the right foundations. 

Have a good week, 

The Financialista 

Bloomberg:
Sharif, Arif (2010) "Dubai Government to Seek $1 Billion From Bond Sale Next Week, Bankers Say" Date Viewed: 26th September, 2010. Available online at: 

http://www.bloomberg.com/news/2010-09-23/dubai-to-seek-1-billion-from-bond-sale-next-week-bankers-say.html

The Financial Times:
Oakley, David (2010) "Dubai plans to sell $1 billion in bonds" Date Viewed: 26th September, 2010. Available online at:

http://www.zawya.com/story.cfm/sid20100923_1203_282/Dubai%20Plans%20To%20Sell%20$1B%20In%20Bonds

Images:
The Phoenix (2010) Date Viewed: 26th September, 2010. Available online at:
http://thephoenix.com/blogs/blogs/phlog/dubai-palm-islands.jpg


Eikongraphia (2010) Date Viewed: 26th September, 2010. Available online at:
http://www.eikongraphia.com/wordpress/wp-content/TheWorldDubai.jpg