Rebirth of England

"Your Highness the Duke, we have started negotiations with Dubai World Group on the acquisition of their railway shipping company. At present, it seems that their attitude is still very positive..."

During the phone call, Finn Hudson, CEO of Global Industrial Investment Fund (GII), told Barron:

"After all, because of the sovereign debt problem, they now need funds and are ready to restructure the largest corporate entity they own."

Many people know that after the subprime crisis, the sovereign debt crisis broke out in Europe, mainly in the "European Pig Five" countries, but I am afraid that very few people know that earlier, the Dubai sovereign debt crisis also broke out in the United Arab Emirates.

The full name of the United Arab Emirates is the "United Arab Emirates", which consists of 7 emirates. The most well-known of them, Dubai, is actually one of their emirates - the Emirate of Dubai.

Just last month, the Emirate of Dubai in the United Arab Emirates announced that it would restructure its largest corporate entity, DB World, and delay its debt repayments for six months due to huge debt problems.

Affected by this news, European stock markets plummeted, with some bank stocks generally falling by about 4%.

The reason for this is that a large proportion of Dubai World's creditors are European banking institutions. Among them, only British creditors include HSBC Holdings, Barclays, Rice and Royal Bank of Scotland.

On the day after this news was released, the European stock markets of these banks generally fell by 4%.

At present, the Dubai government has stated that it has appointed Deloitte accounting firm to lead the restructuring of debt. However, market participants are worried that because Dubai has relied too much on external funds in the past and international financial institutions have been heavily involved, these institutions may face huge losses and bad debts in the future. , just as he regained his strength, he was hit again.

According to data obtained by Barron's, the Emirate of Dubai currently has a total debt of more than 80 billion U.S. dollars. As the largest entity company under its control, Dubai World has liabilities of nearly 60 billion U.S. dollars, of which more than half of the debt is held by European banks.

Dubai World Group, whose business spans real estate and port shipping, is the largest entity company in the emirate of Dubai. From the famous Burj Al Arab Hotel in Dubai to the Burj Khalifa that will be completed next year, and even the Palm Island and other well-known real estate projects in Dubai, it is It is invested by Dubai World Group.

And five years ago, Dubai World Group also acquired the well-known port shipping company British Railways, making it one of the largest related groups in the world.

However, Dubai World Group's current liabilities are as high as 60 billion U.S. dollars, and their third batch of 5.7 billion U.S. dollars of debt that is about to mature has been unable to be repaid on time. It needs to be postponed for 6 months and will not be repaid until May 2010. This This resulted in its sovereign credit rating being impacted and downgraded by multiple rating agencies, making it even more difficult to continue financing.

Speaking of Dubai, many people have the impression that it is very wealthy and has many "wonder projects", such as Burj Khalifa, Palm Island and Burj Al Arab...

So why did a sovereign debt crisis break out in such a wealthy place?

Dubai's rapid development has always been called the "Dubai Model", which refers to an economic development model dominated by high-end real estate and the financial industry, which relies on large-scale borrowing and financing to carry out large-scale construction projects, trying to drive financial leverage to "compound profits". This drives economic development.

In fact, although the United Arab Emirates is one of the OPEC members, among the seven emirates in the United Arab Emirates, the Emirate of Dubai is the one with the most scarce oil resources...

Therefore, since the last century, when they faced the depletion of oil resources, they began to transform, hoping to obtain stable income through the development of financial industry, real estate and tourism.

To this end, they began to borrow heavily. In fact, the "wonder projects" in Dubai are mainly carried out through financing. The major financiers are other emirates in the United Arab Emirates and real "rich countries" such as Saudi Arabia. In addition, , European and American banks also provided them with a large amount of funds.

But first of all, in terms of finance, they have invested heavily in the international financial industry in recent years. They have made many large-scale acquisitions, such as investing in American companies, as well as European banks including Deutsche Bank. They have also made large investments, including their previous The acquired British Railways Steam Navigation Company...

But during the subprime mortgage crisis that began to erupt on a large scale last year, due to the global economic recession, these investments they made suffered substantial losses...

But the most important thing is that, according to data obtained by Barron's, 90% of Dubai's sovereign funds rely on borrowing to finance acquisition projects rather than paying their own money. Dubai World has successively borrowed money from many banks in the Middle East and Europe...

Istithmar, an investment company under Dubai World, has made a total of US$27 billion in acquisitions since 2003, of which their own investment amount is only US$2.5 billion!

The current debt of the Emirate of Dubai is as high as 88 billion U.S. dollars, exceeding its GDP last year and accounting for 48% of the entire UAE debt. The debt of Dubai World alone reaches 59 billion U.S. dollars. With such a high debt ratio, when the economy is booming, there is a potential crisis. It is often covered up by rising housing prices, popular investment projects and models, and rising market expectations. However, once the situation changes, investors' expectations are reversed, market confidence is lost, and funds flee in large quantities, it will cause a debt crisis.

Speaking of housing prices, it is also one of the main reasons for the sovereign debt crisis in Dubai this time. Just like their financial investments, in order to develop real estate and tourism, Dubai first needs to have considerable visibility in the world, so they are through Continuously build "wonder buildings" to gain popularity.

But this requires sustained large-scale investment, much of which is also obtained through financing...

It can be said that in these years, Dubai's construction sites have been busy all over the city, and many projects have been titled as "the highest in the world" and "unique in the world". Projects with investments of hundreds of millions of dollars are everywhere, and many projects have invested dozens of dollars. Billions or even tens of billions of dollars.

For example, the ultra-luxury hotel Atlantis on the Jumeirah artificial island of Palm Island cost as much as 1.5 billion U.S. dollars, and its opening ceremony alone cost as much as 20 million U.S. dollars...

The "Burj Khalifa" scheduled to be fully completed in January 2010 is expected to cost US$8 billion, the Palm Island plan will cost US$14 billion, the "Dubai Paradise" will cost US$64 billion, and the more ambitious Jumeirah New City plan will "burn" 95 billion. Dollar.

According to statistics, Dubai has spent as much as US$100 billion on construction projects in recent years, while the World Bank estimates that the entire reconstruction funds in Iraq are only US$53 billion.

One fifth of the world's cranes operate here, and a total of 250,000 construction workers work here.

In order to develop these projects, the Dubai government and its development companies have borrowed heavily in the global bond market to raise investment funds, or they have operated subsidiaries of Dubai Holding to list on the Dubai International Financial Exchange and issue corporate bonds. International funds have also flowed crazily to this area. A region is chasing profits, and the Dubai authorities have inadequate systems and supervision of the real estate market, causing the real estate market to lose control for a time.

According to reports, buying real estate in Dubai only requires a deposit, and buying off-the-plan properties only requires a down payment of 5%-10%. This became a common sales method during the peak of Dubai's real estate bubble.

Many people who invest in real estate in Dubai have never seen an existing house. They only need to pay a deposit of 5,000-10,000 dirhams after looking at the drawings, and then sell it to the next house within half a month. Once they know that the real estate company has a project launched , many people will try their best to buy a house number, and there are even cases of queuing up overnight to get the number. The person who gets the number can make money by selling the number. He can earn 100,000 dirhams (equivalent to 186,000 dirhams) for one number. Chinese currency).

Driven by this crazy investment enthusiasm, Dubai's housing prices have skyrocketed, nearly quadrupling in less than ten years.

The real estate bubble kept getting bigger and bigger, and finally it was time to burst, and a crisis occurred.