"..Lifestyles of the Rich & Famous -- when their money runs out.................
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Dubai's Shock May Not Be Last
By RICHARD BARLEY
Dubai has delivered investors a wake-up call. The Gulf State's decision to seek a six-month standstill on debt of conglomerate Dubai World isn't only a reminder of the deep problems in Dubai itself but highlights the biggest risk for markets in 2010: less-predictable actions by governments. With sovereign finances stretched, investors need to remember that governments can and will change the rules when necessary. Asset prices, buoyed by a faith in policy support, may need to adjust to that.
Dubai World, whose activities span real estate, ports and leisure, has $60 billion of debt. The immediate casualty is a $3.5 billion bond due to be repaid in December from real-estate developer Nakheel, the builder of the emirate's palm-tree-shaped island. It isn't yet clear which other parts of Dubai World's empire will be affected. Port operator DP World said Thursday that its debt, which includes $3.25 billion of bonds, won't be included in the restructuring.
The Dubai World decision has raised doubts about other Dubai government-related debt. Moody's has estimated the emirate may need to restructure up to $25 billion of debt, particularly in real estate. Credit Suisse estimates European banks could have $40 billion of exposure to Dubai. But it is difficult to assess the full impact as Dubai doesn't publish consolidated data on public-sector debt. The uncertainty is reflected in Dubai's credit-default swaps, which have soared to 5.7 percentage points from 3.18 percentage points in just two days.
Until now, corporate-credit and stock markets have remained fairly sanguine in the face of global jitters over sovereign credit quality in countries such as Japan, Greece, Ukraine and Dubai itself. But the Dubai World announcement, which came the same day as Dubai said it had raised $5 billion in bonds from Abu Dhabi banks, has shaken investors out of their complacency. Some Western European stock indexes fell about 3% Thursday, Eastern European currencies declined and the Markit iTraxx Crossover index widened by some 0.30 percentage points.
Dubai's decision may mark a watershed. Throughout the crisis, governments have looked to prop up some assets: After the global-banking bailout, support was extended to some auto makers in the U.S. and Europe. At a sovereign level, countries have banded together to provide support to peers in trouble, such as Latvia. Dubai itself set up a Financial Support Fund for its government-related companies.
But this support carries a cost. Governments are under pressure to rein in borrowing, particularly as central banks start to withdraw stimulus measures, thereby removing some of the support for government-bond markets. As a result, they may no longer be able to provide such wide-ranging support. The result could be more nasty surprises as governments cast other nonviable investments adrift.
Write to Richard Barley at richard.barley@dowjones.com
online.wsj.com
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Looks like Mega-wierdo, Michael Jackson, decided to cash in his chips at the right time.
His fab-pad's value in Dubai may have just taken a major nosedive in valuation.
Life's tough in Sand City.
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