A top Dubai finance official said yesterday that heavily indebted Dubai World was not guaranteed by the emirate’s government, crushing earlier assumptions by creditors that the Arab emirate would guarantee its liabilities.
Abdulrahman al-Saleh, director general of Dubai’s Finance Department, said lenders to the conglomerate bear some responsibility for the current crisis. He said they lent money based on the viability of the firm’s projects, not because of government guarantees.
Al-Saleh said while Dubai owns Dubai World, it has been clear since the conglomerate was established that it was independent and that it “is not guaranteed by the government.”
His comments on Dubai Television came on the first day of trading in the United Arab Emirates (UAE), with markets recording record falls amid concerns Dubai World may default on its US$60 billion debt.
Stock markets in Dubai and Abu Dhabi plunged yesterday, shedding 7.3 percent and 8.3 percent respectively, as investors waited for clarity on Dubai’s request for a six-month delay on repaying US$5.7 billion in debt issued by Dubai World and its Nakheel unit and due to mature before the end of May.
“The restructuring is a wise decision that is in the interest of all parties in the long term but might bother creditors in the short term,” Saleh said.
The UAE central bank’s decision on Sunday to provide emergency liquidity to its banks has helped ease some concerns, but Saleh said he doubted it would be required.
“I think banks are not at a stage where they need any extra liquidity from the central bank,” he said.
Dubai World is one of the emirate’s three big holding firms, along with Dubai Holding and Investment Corp of Dubai.
Dubai’s DFM Index closed at 1,940.36 points, down 152.80 points from Wednesday. Leading securities, particularly in the construction and finance industries, plunged almost by the maximum-allowed limit of 10 percent after the bourse reopened following a four-day holiday. The bourse in Abu Dhabi dropped 8.31 percent to 2,668.23 points.
However, Asian markets rallied yesterday, with Hong Kong surging 3.25 percent and Tokyo soaring 2.91 percent. Banking shares, which bore the brunt of the selling on Friday on worries about banks’ exposure to Dubai World and Nakheel, were at the forefront of the rebound.
However, European stock indices reversed Friday’s bounce. The FTSE Eurofirst 300 fell 1.2 percent and Britain’s FTSE 100 was down 0.9 percent.
UK banks have the biggest loan exposure to the UAE and further doubts about sovereign support for Dubai saw sterling slip slightly in mid-morning too.
However, Britain’s HSBC — the European bank with the greatest exposure to the UAE, according to estimates by the Emirates Banks Association — rose 0.5 percent.
Wall Street futures were a touch lower, indicating a mixed-to-lower open for the S&P 500 index of top US shares — which have not had a full day’s trading since last Wednesday.
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