Dubai, Abu Dhabi markets plunge on debt woes

Dubai, Abu Dhabi markets plunge on debt woes

Dubai: Stock markets in Dubai and neighbouring Gulf emirate Abu Dhabi went into freefall on Monday as investors in the United Arab Emirates grabbed their first chance to respond to Dubai’s debt crisis.

Dubai stock market dropped by 7.19% as leading securities, including construction and finance, plunged almost by the maximum-allowed limit of 10% at the opening, which followed a four-day holiday.

The market was trading in the morning session at 1,942.62 points, dropping 150.54 points from Wednesday’s close, just before the Dubai government’s shock announcement it wants to freeze debt repayments by its mighty Dubai World conglomerate for at least six months.

Dubai’s benchmark DFM Index finished trading on Wednesday at 2093.16, up around 28% this year, though still two-thirds below its all-time highs two years ago.

The financial market of oil-rich Abu Dhabi also reacted negatively to Dubai’s debt woes, dropping 8.09% to 2,674.79 points in morning deals.

The two markets have so far shed around $10 billion of their market capitalisation.

Dubai World property unit Nakheel, builder of the iconic Palm Jumeirah artificial island, asked on Monday to suspend trading of its sukuks, or Islamic bonds, listed on the Dubai-based NasdaqDubai exchange.

One of the key loans affected by the planned debt moratorium is a Nakheel issue of $3.5 billion of Islamic bonds or sukuks, scheduled to mature on 14 December.

Investors appeared failed to draw reassurance from the UAE central bank’s announcement on Sunday that it was providing additional liquidity to the UAE banks.

“This is a step aimed to calm investors... Markets should be calmer (than feared) tomorrow," Emirati financial analyst Nasser bin Gaith said on Sunday.

He said he expected the decision to have no real immediate impact on Dubai’s debt problem, pointing out that Dubai World is largely indebted to foreign banks.

“On practical level, there is no direct impact... Local banks have limited exposure to Dubai World, unlike foreign banks," he said.

British banks reportedly have a total exposure of $30 billion to Dubai World.

Other Gulf stock markets have also been on holiday since Thursday for the Muslim feast of Eid al-Adha, sparing them an immediate impact from Dubai’s announcement.

However, the news sent shock waves throughout other markets around the world on Thursday and Friday as investors feared a possible default by Dubai and its state-owned businesses, which together owe $80 billion.

Asian shares rebounded on Monday, with Hong Kong’s Hang Seng Index surging 3.55% to 21,883.95 in afternoon trade to recover some ground after Friday’s tumble of nearly 5%.

Dubai and Abu Dhabi are the only Gulf stock markets open on Monday. Kuwait follows on Tuesday and Saudi Arabia’s financial market, the largest Arab bourse in capitalisation, will remain on holiday until Saturday.

Dubai does not have big oil reserves, unlike Abu Dhabi which sits on around 95% of the UAE’s crude deposits and runs the world’s largest sovereign wealth fund valued by analysts at $400 to $500 billion.

Two Abu Dhabi-controlled banks subscribed to Dubai bonds worth $5 billion in a deal announced a few hours before Dubai revealed its debt problems.

But doubts have been growing about Abu Dhabi’s commitment to buoy Dubai, whose growth came to a screeching halt amid the global credit crunch before going into reverse gear.

Property prices in the once-booming desert city have slumped by 50% from their peak.