(MENAFN- The Peninsula) There is nothing abnormal for corporate borrowers the world over to ask for rescheduling their debts, says a financial expert and economist from Saudi Arabia.
Talking in the context of the state-owned Dubai World without naming it, Dr Mohamed Al Jebreen told The Peninsula late on Tuesday: "Companies usually reschedule their debts."
In remarks on the phone from Dubai where he was on a brief visit, Al Jebreeen said no lender ever gives corporate loans without adequate collateral.
In the case of Dubai, the assets of the borrowing entity, which is presently in the throes of a controversy, should have pledged its assets (properties for whose development loans have been sought) as collateral with the lenders.
"But the problem is that property prices are currently down almost 50 percent the world over, so they can't be sold off to repay debts," said Al Jebreen who holds a Ph D from a prestigious US university.
Al Jebreen teaches finance and economics at King Saud University, Riyadh, and is also Vice-President (Finance) of Rana Investment, a company based in the Saudi capital.
"I am sure that due to the slowdown in the real estate market globally the value of properties that are pledged as collateral with lenders are much less now than when the loans were taken."
His argument implicit in the above statement is that Dubai's debts can be rescheduled until the time the property market recovers so that it benefits both the borrowers and the lenders.
Even in the US, especially Florida and California, property rates have declined by almost 50 percent in the aftermath of the world financial crisis.
Some lending banks in the US are seizing properties which were pledged as collateral with them and selling these off at 50 percent lower rates to recover debts, he said.
"So lenders in the case of Dubai can wait. The assets can be sold at a later date (when the market has improved). If these assets are sold right now, they (the lenders) aren't really going to get anything," said Al Jebreen.
Dubai companies that have borrowed are like limited liability entities. "If a limited liability company goes bust you don't go to the owner or owners and seize their personal assets. Do you?," he asked.
Asked about any likely impact of Dubai's debt crisis on Qatar, he said: "I believe that Qatar is different from Dubai. Qatar has oil and gas as the mainstay of its economy. It has industries."
While Dubai mainly relies on tourism which is affected during the hot and humid summer months, said Al Jebreen.
Asked how he felt in Dubai, he said the malls are full of people. The restaurants are crowded but some shop owners in the malls say things aren't the same as they were two years ago, for instance.
There is still housing shortage in Saudi Arabia, but rents that had been spiraling have now begun easing, he said.
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