ABN deal exposed RBS to Dubai debt

Published on Thursday 3 December 2009 20:35

ROYAL Bank of Scotland's exposure to the debt-ridden Dubai World is thought to have been inherited largely through its acquisition of ABN Amro in 2007.

Sources said it was a further evidence of the weakness of the deal secured by former RBS chief executive Sir Fred Goodwin as the liquidity crisis in financial markets unfolded.

Of the $40 billion (24.05bn) of total Dubai World debt, sources said yesterday, RBS had an overall exposure of $1bn to $2bn.

HSBC, Standard Chartered and Lloyds Banking Group are said to have exposure of about $1bn each. All of the banks declined to comment.

However, sources said much of the UK lending to Dubai World is focused on parts of the business outside of the proposed $26bn debt restructuring, like ports operator DP World.

Of the firm's debts due to be restructured, RBS's exposure is believed to be about $700 million, and Standard Chartered's about $350m. One source said: "These figures sound about right. The likelihood is that the banks will take a bit of a haircut to keep Dubai happy, but, with Abu Dhabi's support, hopefully the restructuring will be sensible."

Part government-owned RBS and Lloyds shares both closed up more than 4 per cent.

It is believed Emirates NBD is the biggest single creditor, with outstanding loans of $3bn.

UK banks have loans totalling $50bn into the United Arab Emirates, out of total loans of $123bn by international banks, according to statistics from the Bank of International Settlements.

Dubai World unveiled its debt restructuring plan on Monday, after worries about debt problems had shaken stock markets and creditor confidence since late last week.

The four UK banks are among six creditors who are leading a committee of Dubai World's creditors, which will meet the company next week, according to an Abu Dhabi bank executive.

The appearance of a gradually crystallising bailout for Dubai's problems following the emirate's breakneck expansion in the past decade helped to calm stock market jitters yesterday.

In London, the FTSE 100 index closed down ten points at 5317.26, while Frankfurt was off 0.2 per cent and Paris down 0.1 per cent.

As London closed, Wall Street was trading up about five points. The Japanese market closed up nearly 4 per cent.

One analyst said: "We are not out of the woods, but it seems the market no longer fears Dubai might be a Middle East version of Lehman's," referring to the US investment banking giant that collapsed in September 2008, sending shockwaves round the world.