Stocks plunged and bonds tumbled yesterday, on fears that other Dubai companies could have debt issues and continued uncertainty over Dubai World's restructuring.
Share prices have fallen almost consistently since Dubai World first asked on November 25 for some time off repaying its debts while it restructured itself.
Since then, Dubai World clarified that the restructure referred to $26 billion of debt in relation to its property arms Nakheel and Limitless, and that its other subsidiaries are financially stable.
Despite this clarification, and various official comm-ents on the stability of Dubai and its government-related entities (GREs), investor confidence has not returned to the markets.
"Investors, especially foreign institutions, want a strong statement from Dubai officials that they've found a clear way to help these companies," said Samer Al Jaouni, general manager of Middle East Financial Brokerage.
"There's no reason to buy back into the market without having a clear picture on what's going on. Confidence has been lost."
Stocks on the Dubai Financial Market took a 6.39 per cent dive yesterday, taking the market's combined losses since the first Dubai World announcement to over 25 per cent.
Meanwhile, the price of Dubai corporate bonds was also falling, after Morgan Stanley Research said on Tuesday that other state firms' debt was also at risk.
Nakheel's Islamic bond mat-uring on December 14 fell three points to 47 cents on the dollar, compared with 110 just before Dubai World's statement.
"This does not really enh-ance Nakheel's ability to meet near-term obligations," said Roy Cherry, vice president research of real estate and construction at Shuaa Capital.
According to Bloomberg newswire bonds sold by DIFC Investments and Dubai Hold-ings Commercial sank as low as 44.5 cents on the dollar after Moody's Investors Service cut the credit ratings of six state-run companies on Tuesday.
A jump in the cost of Dubai World subsidiary DP World's credit-default swaps implied a 33 per cent risk that the port operator will renege on debt, Bloomberg said.
Morgan Stanley had said on Tuesday that "the high leverage of many of Dubai's GREs and their significant exposure to real estate and financial assets that have underperformed since H108 make it likely that further restructuring of GRE debt may be needed.
"At the extreme, we believe that as much as $47 billion (or about 52 per cent of GRE's estimated debt) could be at risk," the financial services firm said.
Since the Dubai World restr-ucturing went public, government officials have strived to reassure investors.
Yesterday, HH Sheikh Khal-ifa bin Zayed Al Nahyan, Ruler of the UAE, told Kuwait news agency KUNA that the UAE is capable and determined to contain the impact of the global financial crisis on its "solid" economy.
On Tuesday, Abdulrahmen Al Saleh told Al Arabiya TV that while the Dubai government was not guaranteeing the debts of Dubai World, the government would "provide backing as an owner", without giving more details.
However, these official statements have not been able to prevent the plummet of Dubai's market, nor the smaller drops on Abu Dhabi's exchange, which dropped 2.82 per cent yesterday.
© 7Days 2009
