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An investor walks past the stock exchange board at the Dubai Financial Market - Source: Reuters -
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United Arab Emirates stocks dived as investors waited for
clarity on Dubai's plan to delay repaying billions of dollars in
debt and government word on how it would tackle a crisis that has
rattled global markets.
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 after the UAE central bank promised
additional liquidity to local banks and an official in Dubai's
oil-exporting neighbour 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 realisation that Dubai was an exceptional case
and does not reflect the global economic situation."
In the Gulf, investors wanted reassurance that close to $US60
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 October
2008, and Abu Dhabi's bourse saw its biggest ever fall when they
reopened on Monday after a four-day Muslim holiday.
"The falls were expected. We were hoping for a government statement
that would alleviate concerns," said Haissam Arabi, chief executive
at Gulfmena Alternative Investments.
There was no official word for investors keen to know whether Abu
Dhabi, capital of the UAE federation and home to most of the
country's oil, would rescue Dubai firms. In the effective news
blackout, Dubai radio replaced its live morning business programme
with a recorded item.
Nakheel asked for three of its Islamic bonds, worth a total $US5.25
billion, to be suspended on Nasdaq Dubai until it was in a position
to fully inform the market.
Dubai World had $US59 billion of liabilities as of August, most of
Dubai's total debt of $US80 billion racked up in transforming what
was a sleepy fishing town into a booming regional centre for
finance, investment and tourism.
Falls
Abu Dhabi's benchmark closed 8.31% down and Dubai's index
slid ended 7.3% 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.
National Bank of Abu Dhabi PJSC, which said it had $US345 million
exposure to Dubai World Group, tumbled 9.7%.
The markets have been closed for the Eid al-Adha holiday since
November 26 and other major Gulf markets remained shut on
Monday.
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.
The government of Dubai has taken a hard look at the way Dubai Inc.
operates, and will fix what has not worked, English-language daily
Khaleej Times wrote on Monday.
"The need to restructure Dubai World is for real, and the decision
to go ahead with it indicates maturity on the part of the emirate's
decision-makers," the paper said in an editorial.
Major US indexes fell 1.4% to 1.7% on Friday, barely half the fall
of major Asian indexes, which rebounded on Monday.
The MSCI index of Asia Pacific stocks traded outside Japan rose
2.7%.
"The market over-reacted on Friday," said Phillips Securities
analyst Rock Lam.
Abu Dhabi aid?
The UAE offered banks emergency support on Sunday, in a move
welcomed by the International Monetary Fund, which also urged more
clarity from the governments involved.
"We look forward to further clarification by the authorities
towards a cooperative mechanism to address the issues between these
debtors and their creditors," it said in a statement.
An Abu Dhabi government official said on Sunday the emirate
would provide only selective support to Dubai firms - comments that
fuelled speculation that Abu Dhabi, which has most of the UAE's
oil, will demand a political price for any Dubai
bail-out.
Abu Dhabi has strong incentives not to let Dubai collapse, said a
note by Eurasia Group, but any support would carry a tag.
"Longer term, Abu Dhabi will use this opportunity to establish
greater influence over political and economic decision-making in
Dubai, and Dubai will consequently adopt a more conservative
financial model," the consultancy wrote.
Abu Dhabi has long looked askance at the exuberant ambition of
Dubai, which has run up its debts in pursuit of the ruling Maktoum
family's dreams of building a gleaming desert city.
But some executives at international banks active in the region
have voiced confidence in Dubai.
Mounir Husseini, Deutsche Bank's chief country officer for the UAE
and Qatar, said in an email statement: "It is clear to me that the
leadership of Dubai, supported by Abu Dhabi, is committed to taking
the right steps for the UAE."
