Several Arab stock markets have closed lower in recent weeks, amid continuing concern about the outcome of the Dubai World debt crisis, in spite of $10 billion donated from Abu Dhabi. As an international consultant and appraiser Ben Boothe believes this may help values and stability. But is it enough?
Big Brothers in Abu Dhaibi chip in $10 Billion, with what terms?
to Dubai to help deal with problem debt. The questions are:
1. "Is it enough to stop the crisis in Dubai?"
2. "How much autonomy in foreign policy and free thinking did Dubai have to give up to get this money?"
Benchmarks at two United Arab Emirates stock exchanges, Dubai and Abu Dhabi, dropped over six percent to close respectively at 1,759 points and 2,699 points.
Markets have been declining with fallout from Dubai since late November after its government announced that it would seek to postpone repayments on Dubai World's $26 billion debt. Original reports had said that some $60 billion of debt was in default or in trouble. Now UAE officials are citing $26 billion in “problem” debt, of which $10 billion given as a “handout” from Abu Dhabi, will go directly to pay current defaults. Knowing the truth of financial status in this sector is often hard. One indication is that the stock markets of the region continue to reflect a lack of confidence in UAE’s financial status.
Kuwait's KSE index shed over seven points, reaching 7,056 points, while Egypt's AGX30 index declined 1.5 percent, closing at 6,380 points. However, Saudi Arabia's Tadawul Index gained 1.5 percent this week, closing at 6,243.93 points. Financial analysts say Dubai's debt crisis will continue to have effects on Arab stock markets.
The debt-ridden emirate of Dubai has received a $10 billion handout from its neighbor, Abu Dhabi, to help settle its crisis. It will use US$4.1 billion of the money to pay off the debts of its state-run conglomerate, Dubai World. A subsidiary of the sprawling investment company, Nakheel, had required the money to pay off an Islamic bond, or sukuk, which matured on Monday. On November 25 the Dubai government announced that it would seek to postpone repayments on Dubai World’s US $26 billion debt. The announcement sent shock waves through the world economy and triggered intense speculation on whether the emirate was unable to repay its debt. In a statement on Monday, Sheikh Ahmed bin Saaed al-Maktoum, chairman of Dubai’s Supreme Fiscal Committee, said the US$10 billion bailout would be used to satisfy Dubai World’s debt.
“We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices,” he said.
He also announced the introduction of a long overdue bankruptcy law. “This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations,” he said. As a result of the announcement, Dubai’s main share index closed 10 percent higher, while Abu Dhabi’s rose more than 7 percent. But Dubai’s main index has lost a fifth of its value since the announcement was made. Banks that were exposed to the Dubai World debt also saw their shares increasing. Shares in HSBC, Standard Chartered, Banco Santander, Barclays, and Lloyds all rose. Dubai World is expected to sell off some of its extensive assets to help repay the debt. The conglomerate has shares in port operators around the world.
STRINGS ATTACHED? However, a source close to the Dubai government told reporters in a conference call that there were no strings attached to the Abu Dhabi bailout.
“There are no conditions,” the source was quoted.