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Dubai has shocked investors by asking for a debt standstill at Dubai World, the government's flagship holding company that has developed some of the world's most extravagant real estate projects.
"This will destroy confidence in Dubai, the whole process has been so opaque and unfair to investors," said Eckart Woertz, economist with Dubai's Gulf Research Centre.
Global stock markets tumbled Thursday on mounting anxiety over a debt default request by Dubai and tighter lending conditions in China, analysts said.
London lost 1.86 percent to 5,264.97 points in late morning trade but was suspended at about 1030 GMT owing to a technical issue.
The London Stock Exchange said it was investigating the "root cause" of the problem and would update investors when it had further information.
Elsewhere, Frankfurt dived 1.80 percent to 5,698.99 points and Paris plunged 1.89 percent to 3,737.06 points at the half-way stage.
In Asia, Beijing nosedived 3.62 percent, Tokyo fell 0.62 percent and Hong Kong closed 1.78 percent lower. Chinese shares were also hit by the prospect of tighter banking rules and worries about monetary policy next year.
"We have two major factors weighing on equities and other risk markets: Dubai's call for a moratorium on its debt repayment to May and more stringent capital adequacy requirements for Chinese banks -- but Dubai is bigger," David Morrison, an analyst at financial betting firm GFT, told AFP.
The government of Dubai shocked financial markets on Wednesday when it said it would ask creditors of its Dubai World conglomerate for a debt moratorium of at least six months.
The Dubai government announced that it would revamp the Dubai World group and wanted its lenders to extend its maturing debt until at least May 2010.
Originally posted by ARNOMANNN
What does this say about the rest of the world's economies??? Is this the shape of things to come??? I thought Dubai was one of, if not the richest country in that part of the world I don't get it... All those above expensive hotels and resorts and private man made islands you can see from space...I thought all that was funded with oil dollars...Maybe this has something to do with the move from the petro dollar to the euro????
The Dubai government has been forced to call in accountants Deloitte to advise on a financial restructuring, as its economy buckles under $80billion of debt.
Dubai World, the conglomerate which was the driving force behind the emirate's rapid expansion, is asking creditors to give it some breathing space on the $59billion of loans racked up by the firm and its subsidiary Nakheel.
Dubai World accounts for the bulk of Dubai's debt, having geared up to invest in property and finance. It also owns DP World, owner of the former P&O ports operator.
It has been widely assumed that Dubai's neighbour Abu Dhabi, the capital of the United Arab Emirates, would provide further loans. But now investors are not so sure. It has already bailed out Dubai with $10billion this year.
The cost of insuring Dubai's debt against default soared yesterday. Also in Abu Dhabi, the price of insuring its own debt rose, so it now costs $134,600 per year to insure $10million of its sovereign debt.
Deloitte has flown out a specialist team from London to work on the restructuring.
A spokesman said: 'We can confirm that Aidan Birkett, managing director for corporate finance at Deloitte, has been appointed chief restructuring officer to Dubai World.'
Dubai World is likely to be forced into asset sales after the credit crisis triggered a crash in the value of its property assets and decimated finance and tourism in the state. House prices in Dubai slumped by 47 per cent in the second quarter, compared with a year ago.
The Dubai government last week removed the chairmen of Dubai Holding and Dubai World, two large state-owned firms.
The emirate is due to repay $4.3billion in loans next month and another $4.9billion in the first quarter of 2010, according to Deutsche Bank.
Shakeel Sarwar, head of asset management at SICO Investment Bank said: 'It's shocking because for the past few months the news coming out has given investors comfort that Dubai would most probably be able to meet its debt obligations.'
Originally posted by whiteraven
Turkey Day and all in the USA.
Bank of Scotland, HSBC, and a few others will be caught with pants down...meanwhile back in Saudia Arabia we have the making of a "conflict".
Investors recoiled from risky assets on Friday and dumped shares in Asian banks and builders, fearing a Dubai debt default could reignite the financial turmoil of the credit crisis.
Stocks in Tokyo and Hong Kong were haunted by suspicion that lenders such as HSBC may be exposed to the Dubai firms that built palm-frond shaped islands in the Gulf and planned cities from Pakistan to Africa.
The news shook the markets that were recovering from the collapse of the U.S. housing market and contagion that threatened to rupture the global financial system last year.
"The panic button's been hit again," said Francis Lun, general manager of Fulbright Securities.
Shares in HSBC Holdings dropped more than 5 percent and Standard Chartered fell 10 percent. The London listed shares of the two lenders led the biggest tumble in European bank stocks in six months on Thursday.
The Dubai crisis could have a "meaningful impact" on banks across Asia, said Daniel Tabbush, Asia banks analyst at CLSA in Bangkok, listing Standard Chartered, HSBC and Singapore's DBS Group as the most exposed in the region.
Builders took a beating from Seoul to Sydney on concern that money due from Dubai's grandiose construction projects, including the world's tallest building, would not be paid.
The delays in debts payments and the risks for a global financial system battered by bank failures in Europe and the United States, raised fears of a fresh wave of market turmoil.
“Perhaps Dubai’s debt includes sizeable off-balance sheet liabilities that imply a total debt burden well above the $80 billion to $90 billion markets have estimated so far,” real estate analyst Saud Masud wrote in a note yesterday. “This could imply that the debt issued by Dubai in recent weeks is insufficient to meet upcoming redemptions.”
Stock volatility and risk aversion may jump as countries and companies default on loans, according to Das, the head of market research and strategy at RGE, the advisory firm founded by Nouriel Roubini.
Samsung Engineering Co. tumbled 9.8 percent, leading declines among construction stocks on concern orders may slow in the United Arab Emirates, South Korean builders’ biggest overseas market.
Dubai's debt troubles have exposed the fallacy of its once much-vaunted "model" of raising shining cities in the desert with foreign residents, finance and labor.
They have also set in train a power shift toward Abu Dhabi.
The fiasco is playing into Abu Dhabi's ambition to unify UAE policies, clean up the Gulf state's image and project the country as a political power in the region.