Dubai’s decision not to act as guarantor to debt-stricken conglomerate Dubai World has deterred potential investors from pouring fresh capital into the emirate, the chief investment officer of Lloyd Banking Group’s private banking arm has said.
“The risk is increasing for the same return. So it distracts a lot of capital from this region in this sense,” said Dr George Lo, CIO of Lloyds IPB Global. “The emirate, I must say, has been negatively impacted in the sense that they didn’t know how to control the risk.”
Dubai World shook global markets on November 25 when it revealed plans to request a delay on repaying $26bn in debt linked to its main property units Nakheel and Limitless World.
The state-owned conglomerate evaded default on a $4.1bn bond linked to Nakheel after a last minute bailout from oil-rich neighbour Abu Dhabi.
Commenting on the $10bn lifeline, Dr Lo drew comparisons with the aid package likely to be extended to fiscally-ailing Greece by euro zone countries, in a bid to stave off a sovereign default.
“If you look at the leverage, the details of the arithmetic, it’s a relatively difficult situation… if you’re taking the UAE overall – it’s a bit like Greece within the EU today.
In the total picture, Greece is very small and it should be kicked out [of the bloc] according to the terms of the constitution. But then being a currency union, you want to rescue them,” he said.
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