“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 (UAE) stocks plunged yesterday as investors waited for clarity on Dubai’s request for a delay until May 2010 on repaying billions of dollars in debt issued by Dubai World and its Nakheel unit, developer of three distinctive palm-shaped islands in the emirate.
Saleh’s remarks in an Arabic-language interview on Dubai TV, a station owned by the ruler of Dubai, came after UAE markets closed. (Dubai and Abu Dhabi markets shed 7.3 and 8.3 percent respectively). “They have confirmed there is going to be a restructuring and are doing what they can to differentiate between the government and companies,” said Mohieddine Kronfol, Managing Director at Algebra Capital.
“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.”
Pledges of financial support have come from the UAE’s central bank, helping to steady global markets. The central bank promised additional liquidity to local banks and an official in Dubai’s oil-exporting neighbour Abu Dhabi said on Sunday it would offer selective support to Dubai firms.
But Michael Ganske, head of emerging market research at Commerzbank in London, said a default, which could ultimately benefit the region, “is becoming more likely.”
“At the end of the day it should be positive for Dubai, Dubai’s sovereign risk should go down,” he said.
