Amid a pall of gloom over millions of families across India-- dependent on regular remittances from the Middle East-- after Dubai World's repayment crisis, businessmen and analysts on the ground find the world was over-reacting and worries perhaps unfounded.
"It may have been headline material but it was 48 hours too late," says a Dubai World official on condition of anonymity. According to him, for all practical purposes this was debt payment delay and not a default as it is being made out to be.
India's Finance Minister Pranab Mukherjee also yesterday asserted that there is no need to press panic button. "The full impact of the Dubai debt crisis is yet to be assessed, but there is no need to press the panic button." Buttressing his point he had said "first of all, the amount is small and secondly, the exposure of our banking systems to the Dubai financial systems is limited."
State-owned investment holding company Dubai World has sought extension at least till May 2010 to repay its debt amounting to $59 billion, spooking investor confidence across the world.
Stock exchanges world over, including the Bombay Stock Exchange, tumbled following this latest unraveling in the financial world. It has raised serious concerns in India where millions of families across the country are dependent on remittance from the Middle East.
There is intense fears of job losses particularly in construction sector in Dubai which employs numerous workers from India.
Local Indian businessmen said it is too early to judge the impact on remittances, redundancies and other business activities.
Managing director of Xpertize United and a board member of the Indian Business Professional Council (IBPC) in Dubai Navin Kapoor said there would be hardly any impact on India.
"The exposure of Indian financial institutions to Dubai World is being assessed at this point in time but in my opinion it will have practically no impact on India," he said. "There is no reason to panic on this issue," he added.
HSBC’s CEO Middle East region Simon Cooper said, "I am confident that the leadership of Dubai and the UAE will overcome any short-term issues they face, which appear to have been somewhat sensationalised." HSBC has relations with the government of Dubai and its government-related entities.
"There are no redundancies happening nor will there be in the near future. The group, the city and the country as a whole is more than capable of handling this. The whole thing is a bit of an overreaction," said an analyst.
This acted as a catalyst for an "overdue correction" in equities and risk assets, said another one, adding that the crisis would be handled by the local Dubai authorities and situation would calm down.
However, John Sfakianakis, the chief economist of Banque Saudi Fransi – Credit Agricole Group, says concerns about the debt situation have rattled investor confidence. "In the short-term, investors will come down and begin to differentiate between good and bad bets in the region."
There have also been reports that Dubai World could still meet the December 14 deadline on the $4 billion payment of a sukuk (Islamic bond) from its master developer Nakheel under one option being considered by advisers to the conglomerate.
"Repayment on schedule is one of four alternatives being considered by Dubai World. If it pays back the sukuk, it would solve a problem for the company and its bondholders, and leave open the option of rescheduling bank debt and other liabilities, including bills owed to international contractors," a report in The National today said.
According to the report, in the most drastic scenario Dubai World might embark on a general liquidation of assets. "But this is thought to be a remote possibility."
Sheikh Ahmed Bin Saeed Al Maktoum, chairman of Dubai government's Supreme Fiscal Committee summed up the situation in these words. "We understand the concerns of the market and the creditors in particular. However we have had to intervene because of the need to take decisive action to address its particular debt burden."
According to him the unprecedented growth, in Dubai and across the UAE, over the past decade "has helped lay the foundation for what is now a broad-based sustainable economy beyond just natural resources".
