Dubai govt walks away from Dubai World debacle

Dubai govt walks away from Dubai World debacle

By Goh Eng Yeow, Senior Correspondent

THE Dubai government effectively washed its hands of crisis-hit Dubai World yesterday when it announced that it does not guarantee the conglomerate’s debts.

A senior finance department official said that while the government was the firm’s owner, its many activities and interests meant it had to stand alone.

‘The decision was, from the day of its establishment, that the company would not be guaranteed by the government,’ said Mr Abdulrahman al-Saleh, head of Dubai’s Finance Department in an interview with state-owned Dubai Television, AFP reported.

The statement disappointed many investors and dismayed some. They were expecting a stronger vote of support for Dubai World, which asked for a six-month payment delay on US$59 billion (S$81 billion) of debt on Wednesday.

The silence yesterday on the government’s part - except for the Finance Department statement - knocked investor confidence and sent the FTSE down 0.67 per cent in early afternoon trading in London. Paris’ CAC was down 0.74 per cent and Frankfurt’s DAX was also about 0.81 per cent lower.

‘They have confirmed there is going to be a restructuring and are doing what they can to differentiate between the government and companies,’ Reuters quoted Mr Mohieddine Kronfol, managing director at Algebra Capital as saying.

‘It doesn’t take away from the fact that you have a major potential event that is unravelling. People’s expectations aren’t going to be met with this announcement.’

The Times of London said many creditors had assumed that the structure of Islamic bonds implied there was state backing for this type of financing.

Dubai’s failure to support property developer Nakheel’s debt could have damaging implications for the wider Islamic market.

The statement did not rattle Wall Street last night. The Dow Jones Industrial Average was down 0.3 per cent in early trade, partly on expectations that Abu Dhabi will still bail out Dubai and relief that US banks have limited exposure to Dubai debt.

Asian markets were also more settled yesterday after a weekend promise by the Central Bank of the United Arab Emirates to provide an emergency liquidity facility for local lenders.

Abu Dhabi, Dubai’s rich sister nation, also said it would provide support on a ‘case-by-case’ basis.

Phillip Securities managing director Loh Hoon Sun told The Straits Times that the weekend had given traders time to cool down.

‘The belief among traders is that Dubai is not going to derail us and interrupt the recovery in our economy. I am quite optimistic about the market,’ he added.

On Friday, the Hang Seng Index shed 4.84 per cent, while the Nikkei was 3.22 per cent lower. The Singapore market was closed for the Hari Raya Haji holiday.

But Wall Street steadied the ship that night with a calm response. Blue chips there pared some of their initial losses during a shortened trading session following the Thanksgiving holiday.

So, while stock markets in the UAE fell sharply yesterday - the Dubai Financial Market plunged 7.3 per cent and the Abu Dhabi Stock Exchange lost 8.3 per cent - other bourses were more measured.

Singapore’s market staged a milder form of Friday’s plunge, but blue chips fared far better than expected with only banks and rig builders experiencing a mild sell-off.

The Straits Times Index ended 30.1 points - or 1.09 per cent - down at 2,732.12.

Other regional markets recouped most of Friday’s losses. Hong Kong’s Hang Seng gained 3.25 per cent and Tokyo’s Nikkei-225 Index rose 2.91 per cent.

Reflecting the new calm in the regional markets, the US dollar - regarded as a safe-haven currency when traders flee from riskier assets - surrendered some of its gains against other major currencies such as the euro.

Citi Investment Research strategist Elaine Chu suggested that Asian equities markets might benefit from the Dubai crisis, as foreign funds switch out of riskier markets into safer havens.

Source : Straits Times - 01 December 2009

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