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Arab stock markets crashed today as fears spread to Europe that Dubai's financial crisis could infect its rich and powerful neighbour Abu Dhabi and could yet hammer lending to stricken Dubai World.
More than $10 billion (£6 billion) was wiped off the share exchanges in the United Arab Emirates (UAE) as Dubai's bourse plunged 7.3% while the Abu Dhabi market plummeted 8.3%.
Shares in Dubai World dived 15% amid uncertainty over whether the emirate's ruling Maktoum family will bail out the international trading conglomerate, which owns a majority stake in DP World, parent company to P&O, the Turnberry golf course and a host of other Western businesses.
In a statement which spooked investors, Abdulrahman al-Saleh, director general of Dubai's department of finance said: “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. The government is the owner of the company but since its foundation it was established that the company is not guaranteed by the government.”
That sent European stockmarkets into a spin, and after a bright start the FTSE 100 fell 45.05 to 5200.68 as traders took stock of the fundamentals of Dubai's property-related problems and the fear Abu Dhabi will be infected.
A rally in Far Eastern share markets overnight had wiped away Friday's losses in Tokyo and Hong Kong despite the share slumps in Dubai and Abu Dhabi. That followed the long Eid Islamic festival weekend and came on the first day's trading since Dubai's ruling Maktoum family called a standstill on $60 billion (£36.4 billion) of debt at its wide-ranging Dubai World international trading conglomerate.
It also followed the commitment from the Central Bank of the UAE in oil-rich Abu Dhabi to stand behind the banks and finance houses in the region hit by Dubai's financial troubles.
Denying that it was writing Dubai “a blank cheque”, the Central Bank in Abu Dhabi said it would provide emergency liquidity facilities to banks in the region in a mirror of the intervention by global central banks during the banking crisis in the West of the last year.
However, a UAE Central Bank spokesman warned: “We will look at Dubai's commitments and approach them on a case-by-case basis. It does not mean Abu Dhabi will underwrite all debts.”
In a stark warning from Moody's, the ratings agency said: “The contagion effect for Abu Dhabi will be unavoidable as doubts will be raised as to how Dubai is going to finance its growth.
“The form of the proposed debt restructuring [at Dubai World] could increase the likelihood of downgrades of bank financial strength ratings for the UAE banks are already on review.”
Moheiddine Kronfol of Algebra Capital said: “They [the Dubai government] have confirmed there is going to be a restructuring and are doing what they can to differentiate between the government and the companies. It doesn't take away from the fact that you have a major potential event that is unravelling.
“The fact that you still don't have the facts means this is a fluid situation.”
Mohammad Ali Yasan of Shuaa Securities said: “We shouldn't expect anyone to bail anybody out.
“The banks that are the debtors need to come and sit with the government,” he added.
Reader views (3)
The braying of most of the financial journalists who comment in this newspaper have a distinct anti- Arab flavour bordering on overt racism. Dubai, and its ruler, has created thousands of jobs and career opportunities in both this country and many others. To site just one example, look to Newmarket, and the flat racing economy of this country. Let us attempt to put our own house in order before we seek to criticise others.
- Victor, London, 30/11/2009 23:51
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The Dubai 'Government' is trying to distance itself from Dubai World - and walk away from the debt, in the process. And this should worry the West.
Some facts:
- Dubai World is 100% by the Govt.
- Dubai does not have a government as we in the West would understand it (or rule of law for that matter). Dubai is the personal property of Shiekh Mo (Maktoum). There are no elections and his word is literally the only law. It is a feudal arrangement, with a handful of powerful families owning the major business and at the same time running the major Govt departments.
- To say, as the Dubai 'govt' are saying that Dubai World is not part of the Govt is ridiculous. The govt take 100% of the profits and when doing business with DW there is an explicit or implied guarantee that it is a govt owned company.
- Dubai World is the umbrella organisation for every major development in Dubai. It is impossible to have any substantial contract without it being agreed at some stage by DW. And DW would not agree any contract without it being sanctioned at some stage by the Govt.
- There is a complete absence of transparency in dealings with Dubai World. There is no reporting of financials, justifications to shareholders, or open and formal accountability to the public, investors or to business partners.
Where Dubai is concerned: buyer beware.
- Steve, Dubai & London, 30/11/2009 21:26
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This non payment by Dubai for loan payments is actually worse than people realise as when these loans were taken out the pound was 30% higher. Therefore any payment which they should be making has been discounted by 30% and they still are unable to pay. They are insolvent.
Even if a friendly neighbour comes to their rescue, they will want it back. The best thing the banks should do is forclose piecemeal.
- Propa Gander, Lake District, 30/11/2009 19:34
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