Dubai's Debt Crisis

Of the many booming economies that gorged on debt in the boom years, Dubai, one of the most populous state of the United Arab Emirates stood out. In the space of a few years the emirate's investment arm, Dubai World, has racked up nearly 60 billion US dollars in debt. Having payments of billions of dollars due in coming weeks, however, Dubai announced a six-month

"standstill" on repayments. Our reporter Wang Ling has more.

Shares of banks and other financial-services stocks fell Friday as investors worried about which institutions have lent Dubai World money and now face the prospect of not being paid back on time.

Data from the Bank for International Settlements shows cross-border banking exposure for the United Arab Emirates as a whole totaled 123 billion US dollars at the end of June, of which European banks hold 72 percent, with the United States and Japan holding 9 percent and 7percent of the exposure, respectively. Fang Ming, financial analyst from Bank of China, explains.

"There is no doubt that European governments will push the United Arab Emirates authorities; and the traditional cooperation between the creditors and borrowers will suffer. What's more, Dubai World's default may resonate across the Gulf region and trigger problems in credibility and the potential impact on future fund-raising in the area."

At the same time, Fang says that the debt crisis of Dubai World will not necessarily accelerate into a sovereign default problem.

"Dubai World has some quality assets, like land properties and harbors. Although these assets suffered from knock-on effects there are chances for them to be optimized. Dubai World can also sell some stock shares it holds. "

Given the 180 billion US dollars' foreign currency reserves of the United Arab Emirates' government, and more than 1 trillion US dollars' foreign currency reserves of the Gulf Cooperation Council, Fang Ming says Dubai World will probably get bailout from its government and the country's oil-rich neighbors.

Wang Ling CRI news.