Thursday, December 10, 2009
DUBAI: Fears that Dubai’s debt problems are not limited to troubled state conglomerate Dubai World battered investor confidence in the world’s top oil-exporting region and sent Gulf shares tumbling on Wednesday.
Investors have been left in the dark since the Gulf business hub announced on Nov 25 that it sought to delay payment on Dubai World debt while it overhauls the sprawling state firm, which builds and operates everything from ports to luxury flats.
While Dubai’s government has tried to ring-fence profitable businesses from the $26 billion restructuring at Dubai World, its problems have led to credit downgrades on all government-linked firms amid investor fears that state said would not be forthcoming in times of trouble.
“International banks are not going to see this as a Dubai World problem. They will see it as a state problem, a regional problem,” said Keith Edwards, head of asset management at Doha-based firm The First Investor.
Dubai World unit Nakheel, the developer whose debt is at the centre of the crisis, has a $3.5 billion bond maturing Monday. The bond’s trustee, Deutsche Bank, held a conference call on Wednesday to coordinate the administrative process, sources said, but it was not clear what would happen next.
Ratings agencies said downgrades could accelerate a payment clause for $2 billion in debts at Dubai’s water and power firm. A spokesman at the utility firm rejected the notion, but, underscoring potential problems for other Dubai firms, a unit of Dubai Holding, which belongs to the emirate’s ruler, has sold its stake in Egyptian investment bank EFG Hermes.
Analysts said the move highlighted Dubai Holdings’ vulnerable position as most at risk of defaulting on debt after Dubai World as capital markets become more reluctant to lend Dubai, a member of the United Arab Emirates federation.
“Refinancing for anything with Dubai’s name on it is now going to be very difficult,” said David Butter, director for Middle East and North Africa at Economist Intelligence Unit. “The crisis has exposed the difficulty Dubai authorities will have in trying to cordon off real problem areas.”
Dubai’s predicament stands in stark contrast to the boom years when it snapped up assets, lured celebrities and courted the media with projects such as the world’s tallest building. But whereas neighbours funded growth with proceeds from soaring oil prices, Dubai borrowed to invest through a network of state-linked conglomerates that offered limited transparency.
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