The Dubai debt crisis

The Palm Jumeirah, Dubai

Dubai's flagship companies Dubai World and Nakheel have sought an agreeement with the government regarding their debts after concerns caused share markets to drop.

In Europe, the main share indexes in London, Paris and Frankfurt all opened more than 1 percent lower than usual leading the Dubai government to intervene in the companies' debt restructuring. In a statement, a senior government figure, Sheikh Ahmed Bin Saeed Al Maktoum, chairman of Dubai Government's Supreme Fiscal Committee, was quoted as saying that the government's intervention was aimed to ensure the holding company's "long term commercial success".

"We want to ensure resources are deployed in the full knowledge that they are used to enhance the businesses of the Dubai World Group, build on the restructuring that has already been taking place and ensure long term commercial success," said Sheikh Ahmed, who is also chairman of Dubai Civil Aviation Corporation, chairman and chief executive of Emirates Airline and Group.

"Our intervention in Dubai World was carefully planned and reflects its specific financial position. The government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react. We understand the concerns of the market and the creditors in particular.

"However we have had to intervene because of the need to take decisive action to address its particular debt burden," he added.

"Like most global cities, Dubai has experienced its share of economic and social challenges in this global downturn. No market is immune from economic issues. This is a sensible business decision."

Global fear

The fear, around the world, has been that Dubai's companies' debt problems could reignite the financial crisis, which in turn would lower global demand for a whole range of commodities, such as oil and building materials.

Despite Sheikh Ahmed bin Saeed al-Maktoum's assurances, there are strong concerns that the market isn't strong enough to deal with the emirate's financial problems.

The Dubai debt crisis was triggered when Dubai World, which is owned by the government, admitted that it can not pay its debts and has asked investors to accept a six-month delay on repayments, as it attempts to find funds. The total debt is estimated to amount to over $58.9 billion.

Celebrities set to lose out

Nakheel is a part of Dubai World and as the emirate's biggest property developer has been responsible for some of the region's most famous projects such as the Palm Jumeirah and The World.

Celebrities from all over the world have properties on the Jumeirah Palm, including Brad Pitt and footballers David Beckham and Michael Owen. It is believed their villas may drop in worth by up to 50 percent.

With property prices plummeting, experts have said Dubai may be forced to abandon its flamboyant economic model, which focuses on heavy real estate investment and inflows of foreign capital. Dubai, unlike its neighbour Abu Dhabi relies heavily on tourism and property as it does not have oil reserves to sustain it.

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