UAE markets plunge on Dubai debt woes
Posted: 01 December 2009 1623 hrs

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DUBAI: Stock markets in the United Arab Emirates plunged for a second day on Tuesday after the government said it is not guaranteeing Dubai World's US$59 billion of debt and the troubled conglomerate unveiled major restructuring plans.

In midday trade the Dubai market was 6.41 per cent lower and the Abu Dhabi bourse down nearly 5 per cent, bringing the total drop to more than 13 per cent on both exchanges since they re-opened on Monday.

"Foreign portfolios are still pushing to exit the markets. Those who tried to pull out yesterday and did not manage to do so (due to lack of buyers) are still trying today," said al-Fajr Securities analyst Humam al-Shamaa.

He told AFP: "I believe that those investors will still push for an exit" after the upcoming national holiday from Wednesday to Saturday.

Investors were alarmed by a finance ministry official's statement on television that the government never intended to guarantee Dubai World's debt.

The market was also digesting a statement in the middle of the night from Dubai World saying that it wants to change the repayment terms of US$26 billion in debt and restructure the operations that owe the money.

Dubai's leading real estate sector fell by 9.4 per cent on Tuesday, near the one-day maximum-allowed drop of 10 per cent, while the finance and investments sector shed 8.3 per cent of its value.

Giant property developer and market leader Emaar sank by 9.9 per cent, following the pattern of its Monday movement, while Dubai Islamic lost 9.8 per cent of its value.

Abu Dhabi's real estate sector plummeted 9.8 per cent, while the banking sector fell 6.2 per cent.

Dubai Department of Finance head Abdulrahman al-Saleh said on state television: "It is true that the government is the owner, but as the firm has several activities and is exposed to different sorts of risks, the decision was from the day of its establishment that the company would not be guaranteed by the government."

Dubai's ruler Sheikh Mohammed bin Rashed al-Maktoum backed up Saleh's statement on Tuesday, by insisting in his first public statement on the debt crisis that putting Dubai government and the debt-laden Dubai World in one basket is "wrong".

Dubai World's overnight press release said the debt review and business restructuring will affect several divisions, including Nakheel World and Limitless World, though Infinity World, Isthithmar World and the group's extensive international ports activities will remain intact.

Dubai World may sell parts of the various units to raise money and it wants to talks to creditors about new repayment conditions, it said.

"Following a detailed review of the Group's liquidity and capital structure, Dubai World has concluded that it should immediately consider alternatives in respect of the debt obligations of certain entities within the group," it said.

"The total value of debt carried by the companies subject to the restructuring process amounts to approximately US$26 billion, of which approximately US$6 billion relates to the Nakheel sukuk" or Islamic bond, the Dubai World statement said.

"Initial discussions have commenced with the banks of Dubai World and are proceeding on a constructive basis."

The UAE president on Tuesday sought to reassure investors that the overall economy of the oil-rich country is "healthy", even as global markets remained edgy over the debt woes of Dubai, one of the seven mini states that make up the federation.

"We would like to comfort everyone that our country today is stronger and better, and that our economy and society are healthy," Sheikh Khalifa bin Zayed al-Nahayan said in an address to mark Wednesday's UAE national day, released by WAM state news agency.

The Dubai government's request last Wednesday for a six months halt to debt payments had an immediate impact on a US$3.5 billion Islamic sukuk bond due for repayment this month by Dubai World construction unit Nakheel, builder of the iconic Palm Jumeirah artificial island.

The debt freeze announcement sent shockwaves around the world on Thursday and Friday as investors feared a possible default by Dubai and its state-owned businesses, which together owe an estimated US$80 billion.

The four-day regional holiday for the Muslim holiday of Eid al-Adha meant Gulf stock markets had no chance until this week to react. Bourses in Kuwait and Qatar only reopened on Tuesday, when Qatar closed 8.3 per cent lower, falling below its end-2008 level, while Kuwait eased by around 2.7 per cent.

- AFP/sc