Dubai debt crisis rattles recovery

The Dubai government announced Wednesday that it was requesting creditors for a “standstill” on paying back until May 2010 some of the $60-billion debt of Dubai World and its real estate arm,Nakheel. The default request sent shockwaves through the financial world. Nakheel has a roughly $3.5 billion Islamic bond due in December.

In New Delhi,asked if Dubai’s ripples could reach India,Commerce and Industry Minister Anand Sharma said,“I don’t think… developments in real estate sector in Dubai are going to impact (India)… Besides,Indian real estate is doing well.”

Asked if Indian exports to West Asia could be impacted,Sharma told reporters,“I hope not.”

Also in Delhi,Finance Secretary Ashok Chawla said it was “somewhat unlikely” that remittances from the Gulf might be hit.

“Remittances from expats didn’t suffer when the larger (global financial) crisis was on. So whether this should have an impact in terms of employment,in terms of salaries and therefore in terms of remittances is somewhat unlikely,” he said.

In Hyderabad,RBI Governor Duvvuri Subbarao said he had asked his officials to study the impact of the Dubai crisis and “if necessary make recommendations”.

“We shouldn’t react to instant news like this. One lesson that we learnt from the (global financial) crisis is that we must study the developments and measure the extent of the problem and hence study the impact on India,” Subbarao said during an interaction with students of the Indian School of Business.

Speaking at the IIM,Ahmedabad,RBI Deputy Governor Shyamala Gopinath said,“We will ask banks to furnish details regarding their exposure in Dubai World,” adding,“Presently,I also don’t have much information on the issue because the situation is still unfolding.”

“We first need to understand the extent of exposure of our banks. Once we have the details,we can comment,” she said.

Bankers said their exposure to Dubai,especially in its real estate market,was limited. SBI’s head of international operations Pratik Chaudhuri said the bank had an exposure of only $20-25 million. ICICI Bank said it does not have any significant exposure to Dubai corporates.

A senior Bank of Baroda official said the share of Dubai in the bank’s global loan-book of Rs 1,50,000 crore was only Rs 4,000 crore,and exposure to real estate projects in the UAE Rs 600 crore. “The bank does not have any exposure to Nakheel,” the official said.

S Rajendran,head of international banking,Union Bank of India,said the bank has a representative office in Abu Dhabi,but “no book-building was done there”.

In Dubai,a top official of the emirate assured foreign creditors late Thursday evening that Dubai World was in control of the situation,and the company’s request to postpone payment on some of its $60-billion debt was “carefully planned”.

Sheik Ahmed bin Saeed Al-Maktoum,chairman of the emirate’s Supreme Fiscal Committee,said in a statement,“Our intervention in Dubai World was carefully planned. The government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react.”

(With AP)