COLUMN - Stop the Dubai World, I want to get off: Alexander Smith

-- Alexander Smith is a Reuters columnist. The opinions expressed are his own --

By Alexander Smith

LONDON (Reuters) - At long last, Dubai has admitted what has been obvious to everyone else for months: it can't pay its debts.

This painful admission of reality, the signal to Dubai World's creditors that they won't see any of their money until at least next May, pulls the magic carpet out from under companies investors had thought would not default.

The straw that broke the Dubai camel's back is a $3.5 billion sukuk bond. It had been due to be repaid on December 14. It won't be.

The government's argument will be scant comfort to bondholders. The plan is to restructure the emirate's flagship firm and its sprawling portfolio, which includes plum assets like ports operator DP World, as well as a few dogs like the bizarre Palm developments built in the sea off the Dubai coast.

The task of unpicking this web falls to Deloitte partner Aidan Birkett. Sheikh Mohammed bin Rashid al Maktoum, Dubai's ruler, may find himself making up the rules as Birkett goes along, since nothing as remotely embarrassing has been seen in Dubai before.

He will have his work cut out, and the indication that he can do this by next May looks like wishful thinking. Dubai World's debts total $59 billion, including the borrowings of its Palm-owning subsidiary, Nakheel.

Dubai's own restructuring is only just beginning. Some estimates put the emirate's total external debts at almost $80 billion, money spent to finance its extravagant attempt to build a financial metropolis in the Gulf desert.