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Restructuring ‘A Sensible Business Decision’

/ 27 November 2009

The Dubai government sought to reassure markets about its plans to seek a six-month delay in debt payments for its flagship Dubai World conglomerate.

The government said the restructuring plan was “a sensible business decision” that aims to ensure the group’s long-term success.

In a statement issued late on Thursday night, Shaikh Ahmad bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee, said that the government understood the concerns of creditors and had anticipated the market reaction to its unexpected request.

Nonetheless, Shaikh Ahmed, who is also Chairman of the Dubai Civil Aviation Authority and Chairman and Chief Executive of Emirates Airline and Group, said that the government needed to take decisive action to deal with Dubai World’s specific debt problem.

“We want to ensure resources are deployed in the full knowledge that they are used to enhance the businesses of the Dubai World Group, build on the restructuring that has already been taking place and ensure long term commercial success,” he said in a statement issued by the official Wam news agency.

Stock markets in Asia fell for the second day on Friday as investors dumped shares in banks and construction firms seen as exposed to Dubai. However, European shares, which fell in early trading on Friday, regained their poise later in the day.

Shares on Wall Street, which was closed on Thursday for the US Thanksgiving holiday, opened lower but firmed up early in Friday’s trading session. The New York Stock Exchange fell initially by 2.7 per cent from Wednesday’s close, while the Nasdaq was down by 2.3 per cent.

Credit-rating agency Standard & Poor’s placed four Dubai-based banks on its “creditwatch” list late on Thursday, shortly after cutting the debt ratings for several Dubai government-owned and related companies. S&P said it was concerned about the banks’ high exposure to Dubai World.

Markets recoiled after the Department of Finance announced on Wednesday that Dubai World would be seeking to postpone its debt payments until May 30, 2010. Shaikh Ahmed’s statement seemed to be aimed at allaying fears among Dubai World’s creditors that it might default.

Dubai World owes $59 billion in debts. Its property subsidiary Nakheel is due to repay a $3.52 billion Islamic bond in December. Bank of America-Merrill Lynch estimated that Dubai entities will owe total debt payments of $3.8 billion this year, $12.3 billion in 2010, $19.0 billion in 2011 and $18.0 billion in 2012.

“Our intervention in Dubai World was carefully planned and reflects its specific financial position,” Shaikh Ahmed said. “The government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react. We understand the concerns of the market and the creditors in particular.

“However, we have had to intervene because of the need to take decisive action to address its particular debt burden,” Shaikh Ahmed said.

Dubai, “like most global cities,” has faced its share of economic and social challenges in the current economic downturn. “No market is immune from economic issues. This is a sensible business decision,” he said.

In apparent anticipation that creditors and investors would be eager for additional details, Shaikh Ahmed said that the government would make further information available “early next week.”

Dubai announced its restructuring plan as world markets were still recovering from the aftermath of last year’s collapse in the US housing market and Lehman Brothers investment bank. Some analysts worried that the harsh international response might trigger a flight from emerging markets elsewhere.

But improving stability on European bourses and the lack of a rout on Wall Street suggested that markets were starting to regain confidence.

“It is likely to take at least a few days before the implications of the impact of a possible default from Dubai are properly digested but for the present it seems that the market is seeing this negative news as a blow to the global recovery but not one that will push it off course,” said Jane Foley, research director at Forex.com, a provider of online trading services.

Shaikh Ahmed said that unprecedented growth in Dubai and the rest of the UAE over the past decade has helped to lay the foundation for “what is now a broad-based sustainable economy beyond just natural resources.”

He added that Dubai’s “economic fundamentals, such as our highly developed infrastructure, strong transport and communications hub and regional financial centre will ensure Dubai remains an attractive regional market.”

·         business@khaleejtimes.com

·         With inputs from Agencies

Email: bruce@khaleejtimes.com

 
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