Dubai exchange nose-dives as trading resumes

[November 30, 2009]  DUBAI, United Arab Emirates (AP) -- Dubai's main stock exchange dropped more than 7 percent and Abu Dhabi markets slid more than 8 percent on the first day of trading in the United Arab Emirates since officials went public that conglomerate Dubai World was struggling with its $60 billion in debts.

Shares of DP World, a profitable port operating division of the debt-ridden Dubai World, were off nearly 15 percent in early trading Monday when the market opened. The overwhelming majority of companies whose shares traded Monday on the Dubai Financial Market, the city-state's main bourse, were also deeply in the red.

"The sentiment is gone from investors' perspective," said Mohammed al-Ghussein, managing partner of Atlas Financial Services in Dubai. But "we expected that since we heard the news last week."

The drop eclipsed the declines seen in world markets last week after Dubai officials on Wednesday announced that Dubai World, the emirate's chief investment and development engine for years, would seek a six-month delay in paying creditors. The news stoked fears that the conglomerate -- and the emirate's -- debt woes could be a symptom of broader financial instability elsewhere in a still fragile world economy.

Asian markets have begun to rebound since the announcement, while European markets were mixed in early trading Monday.

The steep fall came as UAE markets opened for the first time since an extended Islamic holiday that began on Thursday. Investors have had several days to digest Dubai World's news, and clearly found it unpalatable.

"This is one of the biggest drops we've seen in both markets," said Seif Fikry head of EFG-Hermes' brokerage arm in the UAE.

Investors remained uncertain how Dubai would deal with its debt mess. Officials from the emirate have been meeting with their neighbors in Abu Dhabi, the oil-rich city-state that is home to the UAE's federal government.

In an effort to ward off the possibility of a run on the country's banks -- many of which are shouldering big chunks of Dubai's at least $80 billion in debt -- the UAE's central bank on Sunday pledged to stand behind foreign and domestic banks in the country with an offer of cheap money.

The central bank said it would offer a "special additional liquidity facility" allowing banks to draw funds at half-a-percentage point above the three-month Emirates interbank offering rate -- the local benchmark interest rate.

The move, which came shortly after ratings agencies said they had either downgraded or placed on review several UAE banks, appears unlikely to mitigate the immediate damage to the Dubai and Abu Dhabi markets. The bourses had recorded a strong rebound since January after taking a hammering in 2008 amid the global financial meltdown.

The central bank's move appeared to indicate that Abu Dhabi was not prepared to let its troubled cousin collapse, if only because of concerns about the broader impact on the country's economic welfare.

But it remained unclear whether there were any quick fixes that could ward off investors either withdrawing their money from UAE banks, let alone injecting new funds into the country.

"I don't think there's much they (UAE officials) can do at this point in time," said al-Ghussein. "There's going to be a period where they sit still and let things calm down. I don't think pumping a few billion dirhams here or there is going to do anything."

On the day that Dubai went public with the Dubai World debt news, it also announced that two Abu Dhabi banks had bought $5 billion of the emirate's bonds. The new issuance was part of a $20 billion bond program Dubai launched earlier this year, and which saw the UAE central bank snap up the first $10 billion tranche.

Even indications that the federal government was ready to at least partially back Dubai failed to ease the markets in the UAE.

Hardest hit on the Dubai bourse was the real estate and financial sector. Shares of Emaar Properties, the UAE's biggest developer, for example were down 9.86 percent to 3.75 dirhams.

The Dubai government's statement about Dubai World had also specifically mentioned that it would seek a delay in Nakheel's debt repayment. The company is Dubai World's real estate arm, and has a $3.5 billion Islamic bond coming due in December. It is also in the process of merging with Emaar.

Early Monday, in a statement posted on the Nasdaq Dubai Web site, Nakheel asked that all three of its Islamic bonds be suspended "until it is in a position to fully inform the market."

[Associated Press; By BARBARA SURK]

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