Wednesday, December 02, 2009
DUBAI: Emirati stock markets plunged for a second day on Tuesday after the Dubai government said it is not guaranteeing debt-ridden Dubai World, which unveiled a major restructuring plan.
The Dubai bourse closed 5.6 per cent lower, swelling its total drop to 12.5 per cent since local markets reopened on Monday, while the index in Abu Dhabi lost another 3.5 per cent for an 11.6 per cent plunge in just two days of trade.
“Foreign portfolios are still pushing to exit the markets. Those who tried to pull out yesterday and did not manage to do so (because of a lack of buyers) are still trying today,” said Al-Fajr Securities analyst Humam al-Shamaa.
“I believe that those investors will still push for an exit” when markets open again next Monday, after national holidays which run from Wednesday until Saturday, Shamaa told AFP.
Investors were alarmed by a finance ministry official’s statement on television that the government never intended to guarantee Dubai World’s $59 billion in debt.
The market was also digesting a statement in the middle of the night from Dubai World saying that it wants to change the repayment terms of $26 billion in debt and restructure the operations which owe the money.
Statements on Tuesday from the United Arab Emirates (UAE) president and from the ruler of Dubai failed to provide much reassurance. Dubai’s leading real estate sector fell by 9.2 per cent, near the one-day maximum allowed drop of 10 per cent, while the finance and investments sector shed 7.5 per cent of its value.
Giant property developer and market leader Emaar sank by 9.9 per cent, following the pattern of its Monday movement, and Dubai Islamic bank lost 8.6 per cent of its value.
Abu Dhabi’s real estate sector plummeted 9.8 per cent, while the banking sector fell 5.6 per cent.
Dubai Department of Finance head Abdulrahman al-Saleh said on state television: “As the firm has several activities and is exposed to different sorts of risks, the decision was from the day of its establishment that the company would not be guaranteed by the government.”
The emirate’s ruler, Sheikh Mohammad bin Rashed al-Maktoum, backed up Saleh, warning in his first public statement on the crisis that it is “wrong” to put the government and debt-laden Dubai World into the same basket.
Dubai’s economy is now “one of the world’s most solid and stable” because of its diversity, its resources and strategic planning, he insisted.
Dubai World’s overnight press release said the debt review and business restructuring will affect several divisions, including Nakheel World and Limitless World, though Infinity World, Isthithmar World and the conglomerate’s extensive international ports activities would remain intact.
Dubai World may sell parts of the various units to raise money and it wants to talks to creditors about new repayment conditions, it said.
“The total value of debt carried by the companies subject to the restructuring process amounts to approximately $26 billion, of which approximately six billion relates to the Nakheel sukuk,” or Islamic bond, Dubai World said.
Private investor Kishore Kumar was guarded in his assessment of the restructuring announcement. “We have to see what is going to happen in reality,” not just what was announced, he said. Dubai’s statement that it would not guarantee Dubai World was “very negative news,” Kumar, a 41-year-old Indian, told AFP.
When asked if he wanted to sell his stocks, he said: “There is no buyer. You can’t do anything now but wait.”
UAE President Sheikh Khalifa bin Zayed al-Nahayan sought on Tuesday to reassure investors that the overall economy of the oil-rich country was “healthy,” even as global markets remained edgy over the debt woes of Dubai, a member of the Emirati federation.
“We would like to comfort everyone that our country today is stronger and better, and that our economy and society are healthy,” he said in an address marking Wednesday’s UAE national day.
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