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Prince Alwaleed bin Talal, the billionaire Saudi investor, said banks that loaned money to Dubai World can’t claim to be victims of the emirate’s debt crisis because they should have understood the risks.
“These banks are very mature banks, and they have to differentiate between a corporate loan and a sovereign loan,” Alwaleed, 54, said yesterday in an interview on Bloomberg Television.
“When things go sour, you can’t have some banks in the West going to Dubai and saying ‘oops’ and crying wolf and saying, ‘You should have guaranteed those loans.’”
Dubai World, the state-controlled investment firm whose assets include a stake in Las Vegas casino company MGM Mirage, is seeking to reschedule payments on about $26bn of debt.
Standard & Poor’s said on October 15 there was a “significant” likelihood that Dubai would help government-related entities such as Dubai World meet debt obligations. Dubai’s government told creditors of Dubai World on November 30 that they should help in a restructuring of the holding company because the government hasn’t guaranteed the debt.
Royal Bank of Scotland Group Plc was the largest underwriter of loans to Dubai World, JPMorgan Chase & Co said in a November 27 report. HSBC Holdings Plc, Europe’s biggest bank, has the “largest absolute exposure” in the UAE, according to JPMorgan.
Alwaleed said confusion over whether the Dubai government would back Dubai World’s debt “was not helpful at all” and damaged investor confidence in the region.
“However, you have to understand that other countries such as Saudi Arabia, Qatar and neighboring Abu Dhabi are countries to be reckoned with,” Alwaleed said. “With the price of oil where it is now, I don’t think their economies will be shaken at all.”
Crude oil for January delivery gained $1.09 to $78.37 a barrel on the New York Mercantile Exchange on Tuesday, the highest settlement since November 18. Prices are up 76 percent this year.
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READERS' COMMENTS
Posted by Mart, Dubai, UAE on Sunday 6 December 2009 at 10:32 UAE time
Edited by ArabianBusiness.com
If these "state controlled" companies are nothing to do with the state they should be treated like a private company, such as:
1) put the company into administration
2) hold a fire sale of the assets it holds that still have value
3) divide the resulting proceeds between the creditors pro rata
That is what happens in the business world when a company is bust.
Of course this would inevitably result in thousands of redundancies in Dubai as loss making entities are shut down.
And of course those "state controlled" entities still in state hands will find that they are unable to borrow in the international markets other than at punitive interest rates.
A debt default isn't the easy option that is being suggested. The fallout from this will be incredibly damaging.
Posted by Abdul Hamid Khan, Dubai, UAE on Thursday 3 December 2009 at 19:33 UAE time
It’s a lesson to whole UAE banking industry that name lending should be stopped now…it has been observed that in UAE & GCC most of the corporate borrowings are influenced…going forward lender should ensure that any facility extended to the borrower should be based on the borrower’s idividual capacity of repayment rather than assuming that any of its associated entity will help in case of deliquency…
Posted by Ahmed, Dubai, UAE on Thursday 3 December 2009 at 13:46 UAE time
Dubai has done more damage to itself by annoucing it does not stand behind Dubai World. Next time any Dubai entity wants to borrow, the bankers will ask for written commitments from Dubai Government if the borrowing company cannot justify the debt in its balance sheet or complete information to take credit decision is not provided.
This will hold good for all other privtate corporates also. Be ready to furnish all that bankers ask for ! No more assumptions ! Lesson learnt.
Posted by hamid on Wednesday 2 December 2009 at 19:55 UAE time
I agree 100%. These lenders are professional and this is there day to day business. I am sure they have understood the risks and if they wanted a sovereign guarantee, then the had to as for it.
How come if banks want to make a corporate loan, then they would not give it unless either they are convinced that corporation is good for it or they would ask for personal guarantee.
So, if they did not ask for sovereign guarantee, then that means they trusted the Dubai world is good for the loan on its own.
Now instead of pressing the government, its better to work with the borrower to find a solution. I don't think creditors to Dubai World have made a bad call, its just everybody is going through rough time. If all work together, this issue will be resolved.
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