Dubai govt declares it is not responsible of Dubai World's debt

[Naveed Yaseen]

Dubai debt worries linger, Gulf stocks suffer

Tuesday, December 01, 2009
DUBAI: Dubai’s government said on Monday it was not responsible for the debts of its flagship conglomerate, offering little clarity on a plan to delay billions in debt repayments that has rattled world markets.

Dubai last week raised fears of a second bout of global financial turmoil by asking for a six-month repayment freeze on debt issued by Dubai World and its unit Nakheel, a property developer at the heart of the emirate’s boom.

Analysts said a statement by Dubai’s leading finance official shed little light on how much investors could lose in the process. Financial markets in Europe continued to slide afterwards.“Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct,” said Abdulrahman Saleh, director-general of Dubai’s department of finance.

Saleh told Dubai TV that banks did not need extra liquidity and that the market reaction to Dubai World’s restructuring had been overblown.Dubai made its announcement on the eve of a holiday, sending global markets into a tailspin as investors awaited details of what it would mean for Dubai World’s $59 billion in debts.

Asian stocks rebounded earlier on Monday from last week’s declines but markets in the seven-member United Arab Emirates federation, which includes Dubai and Abu Dhabi, plummeted when they reopened after the four-day Eid al-Azha holiday.

Dubai’s market saw its biggest one-day decline since Oct 2008, and Abu Dhabi’s bourse saw its biggest ever fall. Saleh’s comments came after the markets had closed 7-8 per cent down.European shares fell more than 1 per cent and US stock index futures pointed to a lower opening on Wall Street, which have been worried by the possible ramifications of a debt default for banks and property investors. “(This announcement) means that the banks are going to have an issue,” said Vyas Jayabhanu, head of investments at Al Dhafra Financial. “We still expect some action by the federal government eventually, otherwise it will ruin the economic sector.”

Support at a price: Dubai World had $59 billion of liabilities as of August, most of the $80 billion in total borrowing that has transformed what was a sleepy fishing town into a booming regional centre for finance, investment and tourism.

http://www.thenews.com.pk/daily_detail.asp?id=210955