World stock markets rally on Dubai World debt plan

World stock markets rally on Dubai World debt plan

London: Global stock markets rallied on Tuesday as investors absorbed a $26 billion debt restructuring of crisis-hit Dubai World and set aside fresh losses for Middle East equities, dealers said.

In European morning deals, London’s FTSE 100 index of top shares soared 1.50% to 5,268.84 points, Frankfurt’s DAX 30 gained 1.58% to 5,714.89 points and in Paris the CAC 40 added 1.59% to 3,739.72.

“Strong start to the FTSE this morning as markets overnight traded higher, as Dubai fears ease with the announcement of a $26 billion debt restructuring plan from Dubai World," said Spredex trader Arifa Sheikh-Usmani.

“Biggest gainers this morning are in the banking sector which was one of those hardest hit by the news from the Middle East."

Sprawling state-controlled conglomerate Dubai World said it wanted to change the repayment terms of $26 billion in debt and restructure the companies which owe the money.

In Asia, Hong Kong leapt 1.34% and Tokyo surged 2.43% after overnight gains on Wall Street as investors digested Dubai’s latest moves to ease international worries about the troubled city state.

Japan’s stock market also jumped as the Bank of Japan held an extraordinary monetary policy meeting amid speculation it was due to announce fresh steps to help shore up its economy.

In recent trading in London, British banks had taken a beating from the Dubai crisis, amid widespread press reports that the sector has a total exposure of about $30 billion to Dubai World.

However, in morning deals, shares in Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered clawed back ground.

“Demand is strong across all sectors as risk appetite returns to the market," added ETX Capital trader Manoj Ladwa.

Dubai World, which threw markets into turmoil last week when it announced plans to freeze debt repayments for at least six months, announced overnight that it will restructure part of the group, including property arm Nakheel.

“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.

It added: “The total value of debt carried by the companies subject to the restructuring process amounts to approximately $26 billion, of which approximately 6 billion relates to the Nakheel sukuk" or Islamic bond.

World equities were hit Monday after a top finance official stoked fears that the government was washing its hands of Dubai World, insisting it does not guarantee the company.

“The news flow from Dubai and its neighbours (on Monday) did not provide much reassurance for global investors and ensured that equity markets everywhere remained on edge," said Altium Securities analyst Ian Williams.

“At the start of the final month of the year investors appear a little reluctant to push their luck any further."

Last Wednesday’s debt freeze announcement 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.

In Middle Eastern trade on Tuesday, meanwhile, Qatari shares slumped by a whopping 9% at the start of trading, in the gas-rich emirate’s first reaction to the Dubai debt crisis.

As the market reopened following a five-day Muslim holiday, Qatar’s DSM Index raced down sharply, shedding more than 650 points amid a panic sell-off, losing all its 2009 gains.

The strong reaction by Qatari shares is linked to the exposure of local companies to the United Arab Emirates economy in general and that of Dubai in particular, traders said.

In addition, the Dubai and Abu Dhabi stock markets plunged on Tuesday by 6.25% and 5.91% respectively in early trade, adding to the previous day’s heavy losses amid continuing concern over Dubai’s debts.

Investors were alarmed by the finance ministry official’s statement on television that the government was not guaranteeing the $59 billion of debt held by Dubai World, dealers said.