Dubai raised fears of a second bout of financial turmoil last week when it asked for a six-month repayment freeze on debt issued by state conglomerate Dubai World and its unit Nakheel, developer of three palm-shaped islands. But global stocks steadied on Monday after the UAE central bank promised additional liquidity to local banks and an official in Dubai’s oil-exporting neighbor Abu Dhabi said it would offer selective support to Dubai firms.
“Investors are likely to hold on to their shares after a sharp sale last week as worries over the ripple-effect of Dubai’s debt eased over the weekend,” said Eddy Chen, a vice president at National Investment Trust Co Ltd in Taiwan. “There’s a gradual realization that Dubai was an exceptional case and does not reflect the global economic situation.” In the Gulf, investors wanted reassurance that close to $60 billion in debts racked up by Dubai World, most of it owed to local lenders, would be repaid.
Dubai’s stock market saw its biggest one-day decline since Oct 2008, and Abu Dhabi’s bourse saw its biggest ever fall when they reopened on Monday after a four-day Muslim holiday.
Abu Dhabi’s benchmark closed 8.31 percent down and Dubai’s index slid ended 7.3 percent lower.
Banks bore the brunt of the selling as investors anticipated write-downs and loan provisions, while building companies also suffered on expectations of a deeper and more prolonged real estate slump. A building boom had fuelled much of the emirate’s growth before the global financial crisis sent prices tumbling.
Analysts said the timing of the news, the lack of prior communication with investors, and the scant detail given on the payment delay plans had dented Dubai’s credibility. However, Dubai media and some business leaders said problems had been exaggerated and rallied to support the emirate’s efforts to weather the crisis.
