Dubai World instead announced a further restructuring (ie sacking people, more loans, selling assets and and pulling back on projects) and that it was 'asking' Nakheel and Dubai World bond holders to wait for their money until May next year, even though it is due in December. The announcement [thanks for the link Muscato! LOL] has sent CDS rates for Dubai and the entire region sharply higher and seriously blown what little remaining confidence was left in Dubai being willing and able to meet its obligations. The $10bln Dubai previously borrowed from the UAE Central Bank [=Abu Dhabi] is already gone it seems.
If the Nakheel bond is not repaid in December as promised by Dubai's leaders, it will be a default, despite the spin being put on it by Dubai's press.
Ironic then that the Dubai based Gulf News at the same time are still showing a neat little video from July by local lawyer Hassan Arab on how the UAE courts view bounced cheque suspects, helpfully explaining the legal implications in Dubai of a bounced check in the Emirate:
Any bounced cheque .. is a crime.. As per Penal Code 401, the punishment for a bounced cheque is either a fine of a minimum of 1000 dhirams [~US$250] or a period of 1 month to 3 years in prison'
Dubai has suffered from exteremely poor legislation dealing with bankruptcy and insolvency, with no possibility under the law for personal bankruptcy. This is what prompted many expats to flee their debts over the past 9 months, as it is treated as a crime in true Victorian style. Defaulting on a Sukuk bond is essentially the same as bouncing a cheque, except ... er... well... its different. Bouncing cheques is what ordinary people do, while restructuring and defaulting debts is what big insolvent corporations do.
But what's good for the expats of Dubai is, of course, not something the rulers of Dubai feel applies to them. So the likely Nakheel default will not be leading Sh. Maktoum to see the inside of a Dubai prison, a fate many expats have suffered despite their losses being insignificant compared to defaulting on a $3.52bln loan. Nakheel has another $3.6bln loan coming due in May next year too, on top of various other syndicated loans.
The suggestion of a default sent entire European stock markets down around 3% in a day, as the ramifications of Dubai failing to pay its debts would impact the world financial system.
Welcome to Dubai folks, where everything is just peachy! Please bring cash. The cheque's in the mail, by the way.
Photo: Hogarth's depiction of a Georgian debtors prison.