This debt-laden city-state said Wednesday it would restructure its largest corporate entity, Dubai World, a conglomerate spanning real estate and ports, and announced a six-month standstill on the group's debt.
The surprise move quickly sapped investor confidence in Dubai 's ability to pay down its large debt load, sharply increasing the price of insuring against a default. It also represents the most significant fallout so far in the city-state's yearlong economic crisis, triggered by a collapse in its once-booming real-estate sector late last year.
In response to the news, both Moody's Investors Service and Standard & Poor's heavily downgraded the debt of various Dubai government-related entities with interests in property, utilities, commercial operations and commodities trading. In Moody's case, the downgrade meant that the affected agencies lost their investment grade status.
The government of Dubai said it appointed Deloitte LLP to spearhead the restructuring effort, naming an executive at the consultancy as the group's "chief restructuring officer." The move appeared to sideline, at least for the time being, the company's current management team, which had launched an internal corporate restructuring earlier this year.
Government officials, company executives and company representatives weren't available for comment Wednesday. Sultan Ahmed bin Sulayem, Dubai World's longtime chairman and a top lieutenant to Dubai's hereditary ruler, Sheikh Mohammed bin Rashid Al Maktoum, didn't respond to an email request for comment.
A spokeswoman for the Dubai government's Department of Finance, which issued the statement, said Sulayem and the rest of the current management team would remain in place and would be working with Deloitte.
Dubai World executives have "actually been trying to restructure themselves for awhile, and the Dubai government decided it needed to take a more proactive role," the spokeswoman said late Wednesday.
The government said its Financial Support Fund, a fund set up to manage Dubai's debt earlier this year, would start to assess and evaluate the extent of the restructuring required. As part of that assessment, it said officials intend to ask lenders for a debt "standstill" and request they extend debt maturities until at least May 30.
Dubai said the corporation's portfolio includes "strategically important businesses" and said "the restructuring will be designed to address financial obligations and improve business efficiency for the future."
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Since the City Center is Harry Reid's dream project, will six months give him enough time to pass legislation to shift Dubai's debt on to the back of the American taxpayer?
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