by Calculated Risk on 11/30/2009 08:58:00 PM

From The Times: Fear of creditor wipe-out as Dubai jettisons conglomerate

Dubai World, the state-owned conglomerate, was effectively abandoned to its fate by the Emirate's Government yesterday despite previous assumptions that Dubai would stand behind the company. That has raised the likelihood that lenders to Dubai World, which has liabilities of $60 billion, could lose billions of dollars.

Dubai World will be restructured and some of its assets ... are likely to be sold to pay down debt.

However, there is uncertainty over the robustness of creditor protection under Dubai law and lenders are understood to be concerned that they will get little or none of their money back.

Analysts at RBC Capital Markets said: “The bottom line is that creditors have almost no legal legs to stand on to maximise recovery values.”

This reminds me of a post by Rachel Ziemba in early 2008: Petrodollars: How to Spend It

Click on graph for larger image.

Rachel Ziemba writes:

2007 was the first year that spending growth outstripped revenues [growth] in the GCC and many other oil exporters. 2008 budget plans imply even higher current (especially wages and subsidies) and capital expenditures. Even countries that have traditionally saved more (Kuwait) are ramping up spending especially on capital projects and in some cases transfers to the population or pension funds. ... With megaprojects in the works in a variety of sectors including energy and other infrastructure, capital spending will likely continue to rise.

Further Ziemba argued - based on spending growth - that "many GCC countries might have very small current account surpluses" within 5 year, if oil prices hold steady.

And guess what? Oil prices fell - and spending continued to increase. And JA reminded me of this story earlier this month from Bloomberg: Qatar Bonds Gain After $28 Billion of Orders for Sale (ht JA)

Qatar’s bonds rose after the largest-ever sale of debt by an emerging-market government received $28 billion of orders, four times the amount issued.
...
“This is the largest debt deal from an emerging-market sovereign to date,” said Fabianna Del Canto, syndicate manager at Barclays Capital, a lead arranger for the sale, in London. “Qatar has firmly established itself as the premier borrower in the region.”
...
Qatar, the world’s biggest exporter of liquefied natural gas, will use the bond proceeds to provide “contingency funding” for state-owned companies, pay for infrastructure projects, and invest in the international oil and gas industry, according to the bond sale prospectus obtained by Bloomberg News.

Interesting. From lenders to borrowers ...