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An aerial view of The Palm Island Jumeirah in Dubai - Source: Reuters -
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Efforts by Dubai World to restructure about $US26 billion in
debt out of the estimated $US59 billion it owes reassured investors
that the emirate's debt problems can be contained, helping global
markets edge higher.
Dubai World, the government-controlled conglomerate that led the
transformation of Dubai into a regional hub for finance, investment
and tourism, unveiled details of a restructuring plan late on
Monday that would cover debt owed by its main property firms,
Nakheel and Limitless.
"Initial discussions have commenced with the banks of Dubai World
and are proceeding on a constructive basis," Dubai World said in a
statement, its first comment since the crisis began.
Dubai threw global markets into a tailspin last week when it said
it would ask creditors of Dubai World and Nakheel to agree to a
standstill on billions of dollars of debt as a first step to
restructuring.
News of the restructuring plan helped soothe some investor nerves
after the Dubai government disclaimed responsibility for the debts
of Dubai World, crushing assumptions by creditors that the emirate
would guarantee its liabilities.
Hassaim Arabi, chief executive at Gulfmena Alternative Investments,
said Dubai World's restructuring statement offered support to
worried markets but was not likely to completely stem
selling.
"This is definitely good news, it shows they are still committed to
their payments and it removes all fears that this is a complete
default."
No contagion seen
Stock markets in Dubai and Abu Dhabi tumbled, the first day of
trade since the announcement made on the eve of a four-day public
holiday.
Abu Dhabi's 8.3% plunge was its worst one-day fall on record, while
Dubai's 7.3% slide was the biggest in more than a year.
Gulfmena's Arabi said UAE markets could slide further as foreign
investors bailed for the exits while other Gulf markets in Qatar
and Kuwait, reopening after the Eid holiday, were seen playing
catch-up to Monday's declines.
But after initial sharp falls last week, markets in Asia and the
United States rallied on Monday and Asian stocks extended gains on
Tuesday.
"Dubai is still a risk but most of Asia has very limited exposure
to Dubai other than isolated banks. So people may want to avoid the
banks but most other companies are okay," said Francis Cheung, an
equities strategist at CLSA in Hong Kong.
Major Wall Street indexes rose 0.3 to 0.4% on Monday, while MSCI's
index of Asia-Pacific stocks outside of Japan rose 0.6%.
Dubai World said its restructuring efforts would not include other
firms such as Infinity World Holding, Istithmar World and Ports
& Free Zone World, which includes DP World, Economic Zones
World, P&O Ferries and Jebel Ali Free Zone, or JAFZA.
Dubai World said those firms were financially stable.
The statement said the restructuring plan would look at options for
deleveraging, including asset sales, funding requirements and the
formulation of restructuring proposals to financial
creditors.
"It's a step in the right direction," said Raj Madha, a banking
analyst at EFG Hermes in Dubai.
"I'd like to see the details it promises basically: Which entities
they're talking about (selling), how big a haircut they're going to
take."
