Dubai World is famous for its real estate developments: man-made islands built to look like the world map and a palm tree. Nakheel is the real estate development arm, and is responsible for $31 billion of the debt.
Nakheel will probably default on $4.05 billion in a sukuk, which is a shariah loan that conforms to Islamic law. Until now, shariah loans were considered immune from the recession they were prohibited from investing in derivatives and subprime mortgages.
Dubai World is the business arm of the Dubai government. It has assets of $75 billion, but it is all in hard-to-sell real estate. The global recession has made these assets difficult to lease, thus putting Dubai World in a cash-flow crunch. Investors are shocked that the government is not guaranteeing Dubai World's debt. This will hamper Dubai's credibility to establish itself as the new world-class global financial center.
Dubai World, through its subsidiary DP World, also owns some profitable businesses, such as Jebel Ali Port. DP World is not included in the debt restructuring. It has assets of $15 billion.
