Showing posts with label global melt down. dubai crisis. Show all posts
Showing posts with label global melt down. dubai crisis. Show all posts

Saturday, December 19, 2009

Dubai Crisis- Is it the end or the tip of the Iceberg?

Dubai Crisis- Is it the end or the tip of the Iceberg

We all know that the financial crisis in Dubai World is due to heavy exposure in Real Estate Investments and the fall of property prices, and a very little demand for the already completed projects.

Money is locked in declining assets. The same scenario was seen in 2008 in US with large Investment Banks collapsing under their weight by holding huge exposure in real estate market. The ripples of that effect was heard in Asian and European Countries also.

But at that time, the asian countries some what remained insulated from that effect. In India also, those effects can be seen by the fall of property prices and lack of demand.

Now the million dollar question is whether the worst is over or the worst is yet to come. Normally, when a financial bubble is burst, its effect can be seen for 5 to 10 years. For example, the dot com burst had it effect for another 10 years. The same is going to happen now also.

In India, large number of IPO are coming in Infra, Power and Reality sector. This indicates people are still confident of this sector. It does apply that the worst is yet to come. We are likely to see Dubai Crisis scenario in coming months in some Asian and European Countries.

What I feel is that the Dubai crisis is just a tip of the Iceberg. When the whole Iceberg is known to the world, I don’t know how it is going to affect our career and living.

Tuesday, December 15, 2009



The announcement of Dubai world seeking a stand still in debt servicing clearly indicates, that the Global financial crisis is not yet over.

 The economy of Dubai had relied on the massive borrowings. It build the economy mostly on trade,reality and tourism. Moreover Dubai invested largely in foreign assets such as Casinos luxury hotels. Ocean liners, properties  etc. Its economy is substantially financed by international borrowing.

In 2007   global financial melt down hit its growth, trade and tourism very hardly, resulting in entire collapse of commercial trade abandoned construction projects,unoccupied  commercial complexes, which lead the property prizes to tumbled down to its bottom.

At this juncture servicing the huge debts raised to create these assets became difficult. The Dubai world one of the government owned company owing nearly $60 billion to international banks asked for a  stand still as regards debt servicing from its borrowers for six months since late November.

Here it is very important to discuss how this same crisis was handled by both US and Dubai. In US the capitalistic country several private banks, including investment banks have been bailed out of with large dose of public or other wise  taxpayers money. But in Dubai the international lenders to the government owned entities have been left alone to handle the massive credit related problems. In Dubai government  entities are substantially in excess of the GDP of the country hence it considered a sovereign risk in the conventional sense of the term.

 The international banks which lend to Dubai world are in no financial position to take even a partial write down on these assets. It is now certain that the process of cleaning up bad debts and recapitalising them.

After the Dubai world travails, the international credit market unlikely to offer government owned corporates without  an explicit sovereign guarantee .