On Tuesday, Stock markets in the United Arab Emirates plunged for a second day after the government it would not be guaranteeing Dubai World’s 59 billion dollars of debt and the troubled conglomerate unveiled major restructuring plans.
The Dubai market fell by 6.25 percent while the Abu Dhabi bourse fell 5.91 percent in early trade. Total losses since the exchanges re-opened Monday were around 13 and 14 percent respectively.
The finance ministry official’s statement on television that the government is not guaranteeing the 59 billion dollars of debt held by massive state-controlled conglomerate Dubai World, alarmed Investors.
The market was also coming to terms with a statement from Dubai World saying that it wants to change the repayment terms of 26 billion dollars in debt and restructure the companies that owe the money.
Dubai’s leading real estate sector fell by 8.55 percent on Tuesday, near the one-day maximum-allowed drop of 10 percent, while the finance and investments sector lost 9.6 percent of its value.
Emaar, a giant property developer and market leader sank by 9.87 percent, while Dubai Islamic lost 9.84 percent of its value.
Abu Dhabi’s real estate sector also plummeted 9.9 percent, while the banking sector fell 6.46 percent.
Dubai Department of Finance head Abdulrahman al-Saleh said on state television: "It is true that the government is the owner, but as the firm has several activities and is exposed to different sorts of risks, the decision was from the day of its establishment that the company would not be guaranteed by the government."
Manwhile Dubai World issued a statement announcing a debt review and business restructuring.
"Following a detailed review of the Group’s liquidity and capital structure, Dubai World has concluded that it should immediately consider alternatives in respect of the debt obligations of certain entities within the group," it said.
"The total value of debt carried by the companies subject to the restructuring process amounts to approximately 26 billion dollars, of which approximately 6 billion relates to the Nakheel sukuk" or Islamic bond, the Dubai World statement said.
The Dubai government’s request last week for a six months freeze to debt payments only had an immediate impact on a 3.5 billion dollars Islamic sukuk bond due for repayment this month by Dubai World construction unit Nakheel, builder of the iconic Palm Jumeirah artificial island.
However, Dubai World’s overnight press release reported that although Infinity World, Isthithmar World and the group’s extensive international ports business will remain intact, the debt review and business restructuring would affect large parts of its operations, including Nakheel World and Limitless World.
In order to raise money, Dubai World may sell parts of the various unit and it also plans to hold talks with creditors about new repayment conditions.
"Initial discussions have commenced with the banks of Dubai World and are proceeding on a constructive basis."
The Debt freeze announcement last Wednesday, sent shockwaves around the world on Thursday and Friday as investors feared a possible default by Dubai and its state-owned businesses, which together owe an estimated 80 billion dollars.
The regional holiday during the weekend for the Muslim holiday of Eid al-Adha meant Gulf stock markets had no chance until this week to react. Bourses in Kuwait and Qatar only reopened on Tuesday, when both were lower, with Qatar dropping nine percent and Kuwait easing by around 2.1 percent.