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Dubai World

posted by Stephen Lubben

Over the long holiday weekend, we have been treated to a series of increasingly breathless stories about Dubai World's decision to seek a six-month moratorium on some $60 to 80 billion of debt. How Dubai World, a corporation owed by the government of Dubai, will resolve its debt issues has been the subject of much speculation, and little hard fact. Indeed, I believe I saw one story that said Dubai was going to trade Clay Buchholz for Roy Halladay at the Winter Meetings -- but maybe I'm getting my rumor-filled stories mixed up.

One option that has yet to be mentioned is a Dubai World chapter 11 filing. Foreign companies file chapter 11 all the time. Sure the automatic stay is unlikely to have much effect on local creditors in the UAE, but such a filing would prevent any creditor will "minimum contacts" with the United States from taking any of the debtor's assets. That would cover most financial institutions, including many hedge funds, and might allow Dubai World sufficient time to resolve its problems -- and even impose a compulsory workout plan on the same group of creditors. The key question is whether the government of Dubai wants to expose its key asset to an American bankruptcy process.

Comments

If Yukos's attempt to file for bankruptcy in Texas is any guide, a filing of Dubai World's magnitude is unlikely to fly here. However, it bears watching more broadly if this will be treated more like corporate(current appearance) or sovereign (initial impression) debt distress. State-owned enterprises can go either way, especially when they are this huge. The Islamic finance angle is also curious, since the structure is supposed to embed some risk sharing (looks doubtful here). Whoever gets this case, if it becomes a case, will make very interesting law.

I assume Dubai World is a legal enity incorporated in Dubai under Dubai law. Why would they seek bankruptcy protection in a U.S. court?

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