UAE Markets Drop 7%

Mukesh Buch
30 Nov, 2009
New York City

Financial markets in Middle East dropped after Dubai government clarified that lenders should restructure loans to Dubai World and not wait for the government assistance. Markets in Dubai and Abu Dhabi fell more than 7%. DP World dropped 15% and Emmar Properties declined 10%.

[R]7:30 PM Dubai, UAE – Financial markets in Middle East dropped after Dubai government clarified that lenders should restructure loans to Dubai World and not wait for the government assistance. Markets in Dubai and Abu Dhabi fell more than 7%. DP World dropped 15% and Emmar Properties declined 10%.[/R]

Middle Eastern markets dropped sharply as investors begin to digest the prospect of lack of government support to bailout Dubai World.

The lack of clarity from the Dubai and Abu Dhabi government and growing worries that a sudden slow down in the construction industry and rising losses at banks may affect the wider economies in the region.

Dubai’s DFM General Index, the benchmark general index declined 7.3% to 1,940.36 and Abu Dhabi’s ADX General Index plunged 8.3% or 241.93 to 2,668.23. EGX30 Index declined 7.9%.

Markets in Saudi Arabia, Bahrain, Qatar, Kuwait and Oman were closed for the Eid al-Adha holiday. The UAE markets are scheduled to be closed from Wednesday to Saturday.

DP World, the port operator and owned by Dubai World dropped 15% to AED 0.37. Emmar Properties PJSC plunged right at the opening and closed down 10% to AED3.75.

National Bank of Abu Dhabi PJSC declined 9.7% to AED 12.10 and confirmed in a statement that it has $345 million in loans to Dubai World.

Abu Dhabi Commercial Bank PJSC dropped 9.8% to AED2.02 and analysts in the region suggest that the bank may have lent as much as $1.7 billion to Dubai World.

Dubai Takes Hand-off Approach

Dubai worries are expected to dampen trading in New York as investors struggle to estimate the extent of the problem. Dubai World, a state controlled real estate and development entity has asked its lenders to freeze the debt repayment for the next six months.

Markets around the world have been jittery since the request on November 25.

Dubai government officials played down its responsibilities in supporting Dubai World.

Abdulrahman Al Saleh, Director General of Department of Finance told today in an interview with Dubai TV that lenders had granted the financing to Dubai World “on its project schedule, not a government guarantee.”

He went on to say that banks and lenders should differentiate between direct lending to companies and government.

Investors have always assumed that if Dubai gets in trouble Abu Dhabi will provide the assistance. So far, Abu Dhabi has refused to provide blank check guarantee and officials in Abu Dhabi are insisting that the government may provide assistance on a “case by case basis.”

So far Abu Dhabi has avoided in providing direct support to the troubled construction subsidiary Nakheel PJSC. However, investors in the region are expecting a regional conference of rulers of Dubai, Saudi Arabia, Abu Dhabi, Qatar, Kuwait and Bahrain to build a consensus for a regional bailout.

Dubai has halted 400 construction projects totaling $300 billion of investments.

Dubai government may have issued implied guarantee to various projects of as much as $100 billion according to Moody’s Investors Services and $25 billion may be bad debt.