What Is Sovereign Debt?

Sovereign debt refers to debt borrowed by a country with its own sovereignty as a guarantee, whether from the International Monetary Fund or the World Bank, or from other countries. The more influential cases of sovereign debt defaults in history include: Argentina s sovereign debt incident in the 1990s, and Dubai s sovereign debt default incident in November 2009.

Sovereign debt

Argentine sovereign debt default

In the 1990s Argentina's sovereign debt default and debt restructuring. In the 1990s, the external debt of the Argentine government increased significantly, reaching 1,462 trillion yuan in 2000, more than four times the foreign exchange income. He eventually announced a default on all debt. Argentina's currency subsequently depreciated sharply.

Dubai event

The Government of the United Arab Emirates, Dubai, has announced that it will reorganize its largest corporate entity, DubaiWorld, a conglomerate with operations across real estate and ports. The Dubai government claims that its $ 59 billion state-owned group, Dubai World, has requested a six-month suspension of debt repayments, and Dubai World's Nakheel's $ 3.5 billion maturity bond will also be postponed. Driven by the Dubai debt crisis, global stock markets and futures markets plummeted.

Dubai carries heavy sovereign debt due to overdevelopment

Dubai World has developed some of the world's most luxurious real estate projects. Its Nakheel Real Estate Company has constructed many residential projects and reclamation projects, including the famous "world" artificial islands THEWORLD and Palm Islands PALMISLANDS. In June 2009, Dubai announced that it would build a tallest skyscraper in the world (1100 meters), surpassing the current "Dubai Tower" (162 floors, total height 818 meters), which was developed by Nakheel Real Estate Company.

The Dubai government said that the deferred repayment of debt by the two flagship companies is the first step in restructuring Dubai World, asking creditors of Dubai World and Palm Island Group to allow the debt maturity date to be extended to May 30, 2010. According to the Dubai government, Dubai World's assets include some "strategicly significant businesses", and the restructuring is designed to enable it to smoothly fulfill its financial responsibilities and improve future management and operation efficiency.

The Dubai government has appointed Deloitte to help restructure Dubai World. According to people familiar with the matter, Dubai World s largest creditors are Abu Dhabi Commercial Bank and UAE NBDPJSC. Other creditor banks include HSBC, Barclays and Royal Bank of Scotland.

People worry that Dubai World will indeed default, which will prompt the rapid escape of funds from the risky asset market. Some people even believe that Dubai may become the world's worst sovereign debt default event since Argentina's debt collapse eight years ago.