RBC’s emerging markets team have published their view on the whole Dubai debacle.
And in their opinion it was always abundantly clear there was never going to be any recourse back to the sovereign’s assets for Nakheel bond investors.
Indeed, as they wrote on Monday:
… it [the prospectus] explicitly states that any debt obligations of the government cannot have liens or attachments applied to them as per Dubai law. Guess what — Dubai World is considered a department of the government of Dubai and thus it and its coobligor (Nakheel, the property development arm with the $3.5bn debt maturity in December) are covered under this protection. The bottom line is that creditors have almost no legal legs to stand on to maximize recovery values.
And while the analysts conclude the affair is unlikely to result in any system-wide contagion, they do offer this rather sharp pay-off line (our emphasis):
Dubai’s ability to raise $60Bn over several years (2002-2007) to build an empire around an oasis in a desert is indicative of the ridiculous irrational exuberance in credit markets (2002- 2007) that resulted in investors not undertaking the proper due diligence to determine appropriate risk premia and identify attendant risks. This is just another casualty of the credit crisis that has been ongoing for more than two years.
Tsk, tsk, tsk.
Related links:
CSI Dubai - FT Alphaville
What next for Nakheel? – FT Alphaville