The government of Dubai will not bail out Dubai World, an official said this morning.
That’s really bad news for creditors hoping that the ultra-wealthy Abu Dhabi would bailout Dubai World, the troubled Persian Gulf company that last week announced it would seek a six month reprieve on its $60 billion of debts. There’s no way Abu Dhabi will rescue the company if even Dubai refuses to step in.
Many creditors seemed to have assumed that there was some kind of implicit guarantee of the Dubai World debt from the United Arab Emirates. The message from the last few days is that this assumption was wrong.
Here’s the AP’s report on the statement from Dubai:
DUBAI, United Arab Emirates — The heavily indebted Dubai World is not guaranteed by the emirate’s government, a top financial official from the city state said Monday, offering little direction to anxious investors on a day when the United Arab Emirates registered a record fall on the back of Dubai’s debt mess.
On the first day of trading since news of Dubai World’s debt crunch became public, Dubai’s main stock exchange dropped more than 7 per cent while the Abu Dhabi exchange fell more than 8 per cent — the steepest fall in at least a year, according to brokers.
Driving the financial avalanche was Wednesday’s announcement that conglomerate Dubai World would seek an at least six month reprieve on its $60 billion in debts, obligations amassed during years of a building spree that turned the desert emirate into the Middle Eastern version of Las Vegas, Wall Street and, at times, Sodom and Gomorra, all rolled into one.
If markets were looking for reassurances from Dubai that it would stand behind the conglomerate, they got none Monday.
“Dubai World was established as an independent company, it is true that the government is the owner, but given that the company has various activities and is exposed to various types of risks, the decision, since its establishment, has been that the company is not guaranteed by the (Dubai) government,” Abdulrahman al-Saleh, director general of Dubai’s Finance Department, said on Dubai TV.
“Consequently, the company’s dealing with the various parties has been on this basis,” he said.
Al-Saleh’s comments were the first public remarks by a Dubai official since Thursday, the day after the emirate’s government’s announcement about Dubai World’s request for a debt repayment postponement.
The lack of clarity or direction from the rulers of Dubai since the extent of the conglomerate’s financial ills became known has been a major source of angst for investors.
Uncertainty about what step the emirate would take next had cast a pall on world markets late last week.
Investors returned to Dubai and Abu Dhabi’s markets Monday with little news and plenty of questions. As a result, stocks took a dive.
Shares of Emaar Properties, the UAE’s biggest developer, for example were down 9.86 per cent to 3.75 dirhams.
The overwhelming majority of companies whose shares traded Monday on the Dubai Financial Market, the city-state’s main bourse, were also deeply in the red. But the market failed to hit the 10 per cent stop-trading cap largely because a large number of company shares were not traded.
Asian markets rebounded Monday after taking a tumble late last week while European markets were down slightly.
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