Nov 27, 2009

Dubai heat felt around the world

 THE tip is that the company that led Dubai's spectacular growth, Dubai World, will be bailed out of its financial strife by black gold, with the richest member of the United Arab Emirates, Abu Dhabi, writing the cheque. Let's hope it happens, because a Dubai World collapse would send shock waves around the globe, not least in Australia.

It is the holding company for a stable of corporations that includes DP World, which owns port assets around the world and in this country has a comfortable niche alongside local competitor Asciano in the biggest container ports: Brisbane, Sydney's Botany Bay, Melbourne, Adelaide and Fremantle.

The Australian stevedoring assets were picked up in 2006 when DP World paid about $US6.8 billion for the P&O group. In that deal it also inherited extensive maritime operations, including port and shipping contracts with the Royal Australian Navy.

Separately, DP has teamed up with Chris Corrigan's Kaplan Funds management in Australian Amalgamated Terminals, a port joint venture with Asciano that handles general cargo and motor vehicles. The AAT joint venture was approved by the ACCC, but ACCC chairman Graeme Samuel would like to see a third player established in Australia's biggest ports alongside DP World and Asciano, and Queensland, NSW and Victoria are all planning to make it happen. DP World's problems are an unwanted complication.

Another Dubai World offshoot is Nakheel, the property developer that led the astonishing property boom in Dubai that has crashed so spectacularly (Dubai property prices are down about 50 per cent since the global crisis erupted), and is a joint-venture partner in the Middle East with Australia's Leighton Holdings.

Debts Dubai World is seeking to freeze in standstill agreements with its bankers reportedly include $US3.52 billion ($A3.8 billion) of Islamic bonds that Nakheel is due to repay on December 14.

Total debts in Dubai World are about $US59 billion, and while DP World said yesterday the Dubai Government had confirmed DP World and its debt were not included in the ''restructuring process'' Dubai World wants its bankers to agree to, the entire Dubai enterprise is under pressure.

Evidence of that comes here from the fact that Toll Holdings, the group that took over Corrigan's Patrick group and then spun it out into Asciano, has been contacted to see if it is interested in acquiring Dubai World assets in the region.

Assets on the block do not appear to include DP World's container ports, and Toll would not be interested in them anyway. Sources say, however, that Toll is examining the possible acquisition of DP World maritime assets.

If the group's Australian container port assets did shake loose, the list of buyers would be headed by overseas groups including the government-owned, acquisitive Port of Singapore. The big local player, Asciano, would be ruled out on competition grounds.

The theory in the markets is that the United Arab Emirates will not - cannot - let Dubai World go to the wall. Abu Dhabi, by far the largest UAE oil producer, injected $US10 billion into Dubai in February, and is expected to inject more. But the very fact that a state enterprise of Dubai World's mass has gone cap in hand to its bankers to seek a debt moratorium is something for the markets to chew on as they pause for Wall Street's Thanksgiving Day extended weekend.

One of the unspoken assumptions behind the worldwide sharemarket rally is the big shocks from the global financial crisis are known. Dubai is a reminder that shocks are still possible.

It was well known that the emirate's speculative property boom had busted, but the markets were not expecting its key state-controlled company to seek a debt moratorium. They pushed the cost of buying credit default swaps that provide insurance against Dubai defaulting on its debt up by more than 1 percentage point to 4.34 per cent in response. As of yesterday, Dubai was rated a worse credit risk than Iceland.

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