Dubai has asked that it may suspend payment on it’s extraordinary property development schemes including Palm Island, projects that are owned by a holding company, 100% owned by the Dubai government. It is therefore “Sovereign Debt”.
What is disturbing is that loaning governments may respond to Dubai effectively giving the Dubai economy a bail out. There really is no reason to, as the holding company is limited in liability therefore creditors may sit it out and not seek it’s downfall, as they have too much invested and the incomplete project has less value than a completed one.
The actual risk involved (apart from the unnecessary environmental intrusion) if Dubai borrowed more to cover payments and keep building, seem minimal. If the company cannot borrow more, then creditors may tolerate late payment.
The news of Dubai’s possible default had a large impact on world financial markets
December 1st, 2009
UPDATE: Dubai government will not support the debt as it is a problem for negotiation with creditors BBC
Views of Dubai – “you can go to prison for a bounced cheque” “I am trapped here”