Middle East markets reopened on Monday following the Islamic holiday on Friday, but the future of Dubai's giant property developer Nakheel remained uncertain, after it requested postponement of a $3.4bn sukuk repayment due in early December.
The UAE central bank has stepped in to provide funding to the local banking sector, but negotiations on whether other emirates will assist Dubai are still continuing. Global markets have been affected by the news, as investors calculate the damage to the banking sector should the Dubai emirate and the many companies associated with the government struggle to refinance a significant part of their estimated $80bn debt.
However, Walter Molano, head of research for US-based emerging markets-focused investment bank BCP Securities, said the impact of the Dubai debt crisis should not spread widely beyond the Gulf.
"Most of Dubai's debt is held in the Middle East. Many sovereign wealth funds and regional banks are creditors to Dubai. It is also narrowly held by Middle Eastern private investors. Therefore, while tragic, Dubai's default will not have global implications. The imminent default of Dubai confirms that even the largest institutions in the world are still feeling the pinch. Still, the incidents in Dubai may be a good opportunity to pick up assets on the cheap," said Mr Molano.
Nakheel could become the largest restructuring of a sukuk to date, after a default by Kuwait Investment Dar and financial difficulties at Saudi conglomerates Algosaibi and Saad groups earlier in 2009. As those processes have not yet been completed, there is still no firm knowledge about where sukuk investors will find themselves in the restructuring of complex capital structures.
For more on sukuk restructuring, click here to read: Sukuk market faces stern test of maturity.
