Dubai’s government has said that they will not guarantee the debt problems faced by Dubai World, causing global investors to lose confidence.
Last week, global financial markets panicked at the news that a bond issued by Nakheel, the property group linked to quasi-government entity Dubai World, might be pushed to default on its loan.
Following sharp falls in Dubai and Abu Dhabi’s stock markets, the finance minister Abdulrahman al-Saleh did little to contain the panic by saying: “[Creditors] think Dubai World is part of the government, which is not correct.”
“Creditors need to take part of the responsibility for their decision to lend to the companies.”
Mr al-Saleh’s statement caused some surprise, as many people who invested in Dubai World effectively did so on the assumption that the company was guaranteed by the government.
Abu Dhabi’s main stock market lost a record 8.3%, while Dubai dropped 7.3% – the most in a year.
The central bank of the United Arab Emirates (UAE) has said it is setting up a facility to provide banks with extra liquidity, in an effort to turn perceptions that Dubai cannot support its own companies.
Ivan Cooper, Chairman at debt advice specialists Chiltern, said: “Many foreign investors are withdrawing from the market following th enews that the debt problems of Dubai World are not guaranteed by the government.
“It will be interesting to see how this develops, and if investor confidence returns as quickly as it has gone.”
