Dubai's debt crisis will continue to hang over the earnings and credit quality of banks in 2010, Standard & Poor's said in a report on the global outlook for global credit markets.
"Indeed, the fallout from Dubai World's Nov. 25 announcement that it has requested a six-month moratorium on its $26 billion debt payments—subsequently diminished by news of a bailout by Abu Dhabi—illustrated amply the fears of further bank balance-sheet impairment," the ratings agency said in the report.
More than 90 creditors are in talks with Dubai World, once a crown jewel in the business empire of Dubai's ruler Sheik Mohammed bin Rashid Al Maktoum, to reach an agreement on a formal debt standstill for the conglomerate, which has almost $60 billion of total liabilities. Negotiations are expected to be slow.
"This serves as a continued reminder that the impact from deflating property prices globally has yet to fully run its course," S&P added.
Abu Dhabi, the oil-rich capital of the seven-member United Arab Emirates, pumped $10 billion into Dubai's financial support fund last week by buying its bonds. Part of the money is being used to pay off holders of a $3.52 billion Islamic bond issued by Dubai World's real-estate unit Nakheel, known as the developer of three palm-shaped islands..
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