Expert take: How serious is the Dubai crisis?

Excerpts from India Tonight on CNBC-TV18 Watch the full show » RELATED NEWS Dubai World $26 bn debt plan soothes contagion fears Dubai debt plan fails to calm Gulf markets Dubai 'strong and persistent' says ruler Dubai World crisis is bad news for Kerala's economy Nifty BSE | NSE 29/05/12 Are Mutual Funds betting on Nifty?

The crisis in Dubai has cast a shadow over the world's hopes of economic recovery. Former Economic Advisor to the government, Shankar Acharya; Leading Investment Banker, Udayan Bose; the Managing Director of Geojit BNP Paribas Financial Services, CJ George and the well known Portfolio Manager, PN Vijay discuss how serious is the Dubai crisis.

Here is a verbatim transcript of an exclusive interview with Shankar Acharya, Udayan Bose, CJ George and PN Vijay on CNBC-TV18. Also watch the accompanying video.

Q: Let us start with an attempt to assess Dubai's future before we come to what it means for India, as you see things is this simply a delay in Dubai honouring a USD 3.5 billion bond repayment or is it the first signs of a worrying sovereign defaults?

Bose: When you have the first sign of a default or a rescheduling of a bond issue or sovereign bond issue which then will trigger off cross default clause, as we call it in banking language which would mean all of the sovereign debt of that country would technically be in default. Now, I have seen various reports of USD 60 billion USD 80 billion, my own guess is it is in the region of USD 100 billion and a little over. So, therefore technically they would be in default of about USD 100 billion. So, therefore there would have to be some rescheduling and back in the mid-80s Mexico went through something like that, International Monetary Fund (IMF) got involved. Dubai will not have IMF and so Abu Dhabi will probably come in, a lot of the banks are involved of the Western world American, British, they will get involved in restructuring the debt.

Q: You just heard Mr Bose say that Dubai will first look to Abu Dhabi but according to Reuters over the weekend, Abu Dhabi has decided to only step in on a case-by-case basis which means that it will pick and choose the areas whereas prepare to bailout Dubai. Was this expected or is it a second shattering blow?

George: I am of the view that comment was particularly from a person who refused to disclose his name that means this was not an official comment at all. I am of the view that Abu Dhabi cannot let Dubai go down and this is the expectation in all over Gulf Cooperation Council (GCC), it is not only the question of credibility of Dubai alone, it is a question of credibility of entire GCC. So, Abu Dhabi probably is taking time and Dubai is possibly putting some pressure and there is negotiations happening. I am of the view that Abu Dhabi will come around and United Arab Emirates (UAE) Central Bank last year gave a comfort to all the depositors saying that their deposits will be completely safe and UAE Central Bank will guarantee those deposits. If that being the case, Abu Dhabi will certainly bailout Dubai in this case also.

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