Dubai govt offers no guarantees on debt

Dubai govt offers no guarantees on debt

Lenders must take responsibility, says official; Nakheel seeks sukuk trading suspension

(DUBAI) In its second potentially market-decimating announcement in less than a week, the Dubai government yesterday disclaimed responsibility for the debts of its Dubai World conglomerate.

‘Creditors need to take part of the responsibility for their decision to lend to the companies,’ said Abdulrahman al-Saleh, director general of Dubai’s department of finance. ‘They think Dubai World is part of the government, which is not correct.’

United Arab Emirates stocks plunged yesterday as investors waited for clarity on Dubai’s request for a six-month delay on repaying billions of dollars in debt issued by Dubai World.

‘The government is the owner of the company, but since its foundation it was established that the company is not guaranteed by the government,’ Mr Saleh explained on Dubai Television.

While they digest this new development, world markets have begun to recover a measure of equilibrium following Dubai World’s announcement last Wednesday.

The news had earlier sparked fears that the conglomerate’s - and the emirate’s - debt woes could be a symptom of broader financial instability elsewhere in a still fragile world economy.

Yesterday, Hong Kong surged 3.25 per cent after tumbling 5 per cent on Friday; Tokyo shares rose 2.91 per cent; Seoul closed up 2.04 per cent after falling 4.69 per cent Friday while Shanghai rose 3.2 per cent.

However, stock markets in Dubai and neighbouring Gulf emirate Abu Dhabi, the only ones in the region to open since the announcement last week, were predictably dire shedding 7.3 per cent and 8.3 per cent respectively.

Meanwhile, Dubai World’s property unit Nakheel, builder of the iconic Palm Jumeirah artificial island, added to the gloom by asking yesterday to suspend trading of its sukuks, or Islamic bonds.

Dubai’s Nakheel, one of two flagship companies behind the emirate’s rapid growth, said yesterday it had asked for three of its listed Islamic bonds worth US$5.25 billion to be suspended from trade until it can inform the market more fully about its restructuring plans.

The three instruments listed on the Nasdaq Dubai exchange are its US$3.5 billion sukuk due on Dec 14, its 3.6 billion dirham (S$1.36 billion) sukuk due on May 13 and a US$750 million sukuk due on Jan 16, 2011.

Nakheel’s first bond, the US$3.5 billion sukuk, was widely expected by the market to be repaid on time.

While Dubai and Abu Dhabi shed around US$10 billion of their market capitalisation, trading almost froze in both markets amid high offers to sell and negligible offers to buy. The Dubai market registered only 31.5 million dirhams in turnover - less than 10 per cent of average daily trade this year.

‘We expect to see many foreign portfolios withdrawing from the market. Their exit obviously terrifies local investors,’ Al-Fajr analyst Hamam al-Shamaa told AFP, adding that the drop will continue today but recovery would set in after another four-day holiday starting tomorrow.

The United Arab Emirates on Sunday offered the region’s banks emergency support and Abu Dhabi said it would provide selective support to Dubai companies. While investors remain unsure of the mechanics of the aid, many expect strings attached to this - including influencing Dubai to relinquish its dreams of becoming a financial hub.

Some bankers and investors believe last week’s restructuring announcement by Dubai World was blown out of proportion.

‘Investors are likely to hold on to their shares after a sharp sale last week as worries over the ripple-effect of Dubai’s debt eased over the weekend,’ said Eddy Chen, a vice-president at National Investment Trust Co Ltd in Taiwan.

‘There’s a gradual realisation that Dubai was an exceptional case and does not reflect the global economic situation,’ Mr Chen said.

‘The crisis itself has been exaggerated. It is very much localised in one sector and one group. It has been escalated to a much bigger issue,’ Suresh Kumar, chief executive of Emirates NBD capital said.

Riad Kamal, chief executive of construction company Arabtec, said he had no doubt about Dubai’s commitment to settle its debt.

‘Dubai should be given time to restructure its debt. I’m not going to lose sleep over this issue,’ he said. — Wire Agencies

Source : Business Times - 01 December 2009

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