Bangkok Post : No debt guarantee, say Dubai leader

No debt guarantee, say Dubai leaders - Thai investment in emirate only $140m

The Dubai government disclaimed responsibility for the debts of its Dubai World conglomerate yesterday, crushing earlier assumptions by creditors that the Arab emirate would guarantee its liabilities.

"Creditors need to take part of the responsibility for their decision to lend to the companies," said Abdulrahman al-Saleh, Dubai's finance director-general.

"They think Dubai World is part of the government, which is not correct."

United Arab Emirates stocks plunged yesterday as investors waited for clarity on Dubai's request for a six-month delay on repaying billions of dollars in debt issued by Dubai World and and its Nakheel unit, developer of three huge palm tree-shaped islands.

"The government is the owner of the company, but since its foundation it was established that the company is not guaranteed by the government," Mr Saleh explained on Dubai Television.

"It deals with all parties on this basis and it borrows based on ... its projects and not the guarantee of the government."

Mr Saleh said market reaction to last Wednesday's announcement by Dubai World was exaggerated.

"The restructuring is a wise decision that is in the interest of all parties in the long term but might bother creditors in the short term," he declared.

The standstill agreement would affect about $5.7 billion of debt due to mature before the end of May.

Asian markets closed mostly higher yesterday as investors welcomed reports over the weekend that the United Arab Emirates' central bank would provide liquidity to UAE banks.

The Stock Exchange of Thailand index rose 1.28%, gaining 8.70 points to close at 689.07 points. Trading was moderate with 19.88 billion baht worth of stock trading hands.

Hong Kong gained 3.25% yesterday, Seoul rose 2.04% and Tokyo rose 2.91%.

The SET index lost 0.78% on Friday as most world markets tumbled on concern that Dubai World was seeking to delay $60 billion in debt payments.

But Dubai stocks dropped 7.3% yesterday and Abu Dhabi fell 8.3% as trading resumed after a four-day break for the Eid holiday. The two markets have shed about $10 billion of their market capitalisation.

Trading almost froze in both markets amid high offers to sell and negligible offers to buy. The Dubai market registered only 37.5 million dirhams (US$10.2 million) in turnover - about 10% of the average daily trade this year.

"This was expected because markets have panicked over exaggerated reports in the western media," said analyst Hamam al-Shamaa of Al-Fajr Securities.

"We expect to see many foreign portfolios withdrawing from the market. Their exit obviously terrifies local investors. I do not expect investors to enter the market. Tomorrow will most likely be a similar day."

The markets start another four-day holiday on Wednesday.

The Dubai World property unit Nakheel, builder of the iconic Palm Jumeirah artificial island, added to the gloom by asking yesterday to suspend trading of its sukuks, or Islamic bonds, listed on the Dubai-based NasdaqDubai exchange. A key loan affected by Dubai World's planned debt moratorium is a Nakheel issue of $3.5 billion in sukuks scheduled to mature on Dec 14.

Dubai's property market has fallen by 50% from its peak as growth has collapsed amid the global credit crunch and recession.

In any case, the domestic impact of the Dubai crisis is expected to be limited.

Suchart Sakkankosone, a senior official of the Bank of Thailand, said total Thai investment in Dubai amounted to only $140 million.

Dheerasak Suwannayos, president of the Islamic Bank of Thailand, said that if the Dubai debt woes are protracted, it could hurt efforts by Thailand to launch sukuk bonds.

Thailand had hoped to raise up to 100 billion baht from sukuk bonds aimed at Middle Eastern investors in the second half of 2010.

Source: Dubai news, Dubai World, United Arab Emirate (UAE), Financial news, Investment news at Bangkok Post.