Islamic Banking-r1:AMM grid in qxp 12/24/09 9:48 AM Page 71
ISLAMICFINANCEFOCUS
Dubai’sescapefromdefault
escalatessukukuncertainties
Thestate’spropertydeveloperreceivedamassivebailoutfromAbuDhabitospareitfrom
defaultingonUS$10billionofdebt.Butsomeobserverswouldliketohaveseenthedefault
proceedtothrowsomelightonthemurkyenvironmentofinvestorrightsinsukukdeals.
ChrisWrightreports.
D
DubaiwenttothebrinkofdefaultingonUS$10billionof Italsoleavessignificantquestionsunansweredaboutthe
debt–andit’sstillteeteringthere. credibilityofasukukindustrythathasbecomethebedrockof
ThedecisionofUnitedArabEmirates(UAE)capitalAbu globalIslamicfinance.
DhabionDecember14tosupplyDubaiwith$10billion Thesukukmarkethasgrownwithmercurialhasteinthe
allowedittoforestall,attheverylastmoment,adefaulton past13years:TheUAE-basedresearchgroupZawyasays
theworld’slargesteversukuk(theIslamicequivalentofa therewereUS$106.6billionofsukukraisedin747issues
bond)–the$3.52billionissuebyNakheelDevelopments betweenDecember1996andSeptember302009,mostofit
thatmaturedonthesameday. since2002.
Nakheel–“wherevisioninspireshumanity”,asits Butthesector’syouthissuchthatwellover90%ofthat
taglinecontinuestotrumpet–isthebackerofthevast totalisstilloutstanding:todateonly$12.6billionhas
palm-shapedpropertydevelopmentsthataresproutinginto matured.
theGulf,amongthemosticonicprojectsinthismostambi- Consequently,outsideofMalaysia’smorematuredomes-
tiousofcities.Inownershipandsymbolism,Nakheelis ticsukukindustry,therehasbeenhardlyanyexperienceof
Dubai. default.Twodidfallintheglobalfinancialcrisis–Kuwait’s
Thisimportancewasevidentlynotlostonneighbouring InvestmentDar,andtheUS-basedoilfirmEastCameron
AbuDhabi,whichwaswillingtoputuptheneededcapital Partners,whichhasasukukoutstandingbuthasfiledfor
atthelastpossibleinstance. Chapter11bankruptcyprotection.Butsinceneitherissuer
ButthatfinalreprievedoesnotrepairDubai’starnished hasyettomakeittocourt,andmayneverdoso,itishardto
reputationasafinancialcentreandborrower,orgiveany learnmuchfromthemyet.
reasontosuggestinvestorswillrushbacktohelprefinance Forthisreason,aftertheinitialshockwhenDubai
theUS$100.6billionofoutstandingdebtthatMoody’s announcedadebtstandstillonNovember29andaUS$26bil-
believesDubaiIncowesasawhole,US$12.5billionof lionrestructuringincludingDubaiWorldandNakheel,mar-
whichisduein2010. ketpractitionershadstartedtolookforwardtoalittleclarity.
asiamoney.com 71
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