Al Saleh said the response by world markets to the decision was “exaggerated” and that the media has incorrectly reported the company as part of the government and its debt as sovereign.
“(The) decision was sound and favours all parties in the long term and not short term as Dubai World Group has strategic projects,” Al Saleh was quoted by Wam. He said, however, the company’s creditors might have to face some immediate “inconvenience”.
“Creditors should bear part of (the) responsibility as they offered loans as per feasibility of (the) projects and not upon the guarantees offered by the government,” he said, making clear that Dubai World was a commercial entity and its debts were not sovereign guaranteed.
Al Saleh’s statement followed Wednesday’s government decision to allow Dubai World seek a six-month delay in debt payments.
The announcement led to the biggest declines in Asian shares in three months last week and Europe’s worst rout since April.
Investors were concerned the proposal risks triggering the biggest sovereign default since Argentina in 2001.
A day later the government explained that the restructuring plan was aimed at ensuring the group’s long-term success and that helped markets recover some of their losses.
Speaking at the Press Centre at Dubai Media Incorporated, Al Saleh said the media has mixed up the relationship between Dubai World and the Government of Dubai. “(Dubai World) is a company set up with commercial basis and its transactions with creditors and investors were based on that respect.”
He added that the group used to get financing based on its commercial status and feasibility of its projects. “The gross mistake of the media is that they deem the company as part of the government. It is baseless,” he said.
Al Saleh said that Dubai World has implemented huge projects of strategic significance in the emirate, but has been affected by the world financial crisis as other large companies around the world. He added that the company was faced with difficulties in the redemption of its financial obligations, and hence, the decision taken by the government to restructure the company was to help it overcome that situation.
He stressed that the company’s debts and obligations were not guaranteed by the government, indicating that it was set up as an independent commercial company. He added that though the government is owner, “the company has multiple activities and prone to risks. So from day one it was indicated that the government is not a guarantor. Therefore, the dealing of the company with all parties was based on this conception.”
He emphasised that the reaction in the world markets was disproportionate to the size of Dubai World’s loan problem and that the situation would be rectified.
He said restructuring of companies was normal, and had been done by many countries through intervention of governments or boards of directors to deal with difficulties when they occur. He cited the intervention of the UAE Central Bank on Sunday to assure the markets and banks, stressing the existence of good federal coordination in this respect.
The UAE Central Bank said on Sunday that local banks and branches of foreign banks in the country can borrow funds, if needed, from a new funding facility it has set up to support the banking system. The Central Bank said it issued a notice to all banks in the country about the new “special additional liquidity facility” which would be linked to their current accounts at the Central Bank, at the rate of 50 basis points above the three-month Emirates Interbank Offered Rates or EIBOR.
Most markets in Asia rebounded on Monday in response to the Central Bank’s move. But local stock markets came off sharply in their first response to the news of restructuring of Dubai World and its debt.
The UAE support facility is one of several steps taken by the Central Bank to cushion the country from the impact of the global credit crisis. It made Dh50 billion available to banks in September last year and guaranteed deposits of all local lenders and some foreign banks the following month.
— With inputs from Wam