Contractors contemplating taking on work in Dubai are demanding letters of credit (L/Cs) from developers before they start work.

Developers in Dubai reportedly owe around £200 million to British contractors alone, and there are fears that the handful of Dubai-based developers still pressing ahead with projects will not be able to meet their bills.

Debt mountain

Dubai is currently struggling under a mountain of debt, much of which has been amassed by property developers embarked on over ambitious construction projects.

Last week, property developer Nakheel said it would not be able to repay a US$3.5 billion debt that was due this month, an admission that has sent severe jitters through the global financial system.

L/C demands

Dubai is currently staging the Middle East's largest construction exhibition, and some exhibitors at the Big 5 exhibition are reportedly demanding L/Cs from developers before taking contracts.

"Clients have to pay with proper documentation," the export manager for door and window manufacturer Cocif Italy, Matteo Pederiva, told the Zawya Dow Jones news agency.

"We only take L/Cs or we leave some business on the side," he added.

Projects on hold

Contractors in Dubai have suffered especially in the emirate's economic downturn.

The real estate sector has collapsed, with property prices in the emirate falling by around 50 per cent over the last year.

Around four out of five construction projects in the Arabian Gulf are reportedly on hold.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.