DUBAI, United Arab Emirates -- Just a year after the global downturn derailed Dubai's explosive growth, the city is now so swamped in debt that it's asking for a six-month reprieve on paying its bills -- causing a drop on world markets yesterday, and raising questions about Dubai's reputation as a magnet for international investment.
The fallout came swiftly after a Wednesday statement that Dubai's main development engine, Dubai World, would ask creditors for a "standstill" on paying back its $60 billion debt until at least May.
The company's real-estate arm, Nakheel -- whose projects include the palm-shaped island in the Persian Gulf -- shoulders the bulk of money due to banks, investment houses and outside development contractors.
WHITE ELEPHANT: Critics say Palm Jumeirah, a manmade group of islands, is emblematic of Dubai's financial overreach. It wants a reprieve on its $60 billion debt.
In total, the state-backed networks nicknamed Dubai Inc. are $80 billion in the red, and the emirate needed a bailout earlier this year from its oil-rich neighbor, Abu Dhabi, the capital of the United Arab Emirates.
Markets took the news badly -- with the Dubai woes giving investors twin worries.
In Europe, Britain's FTSE 100, Germany's DAX and the CAC-40 in France opened sharply lower. Earlier, in Asia, the Shanghai index sank 119.19 points, or 3.6 percent, in the biggest one-day fall since Aug. 31. Hong Kong's Hang Seng shed 1.8 percent, to 22,210.41.
"Dubai's standstill announcement . . . was vague, and it remains difficult to discern whether the call for a standstill will be voluntary," said a statement from the Eurasia Group, a Washington-based research group that assesses political and financial risk for foreign investors interested in Dubai.
"If it is not, Dubai World will be going into default, and that will have more serious negative repercussions for Dubai's sovereign debt, Dubai World and market confidence in the UAE in general."
Dubai became the gulf's biggest credit-crunch victim a year ago. But its ruler, Sheik Mohammed bin Rashid Al-Maktoum, had continually dismissed concerns over the city-state's liquidity and claims it overreached during the good times.
When asked about the debt, he confidently assured reporters in a rare meeting two months ago that "we are all right" and "we are not worried," leaving details of a recovery plan anybody's guess.
Then, earlier this month, he told Dubai's critics to "shut up."
"He needs to produce a recovery plan that will be respected by those who want to do business with Dubai," said Simon Henderson, a gulf and energy specialist at the Washington Institute for Near East Policy. "If he does not do it right, Dubai will be a sad place."
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