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The world panics, but Dubai says debt move was "carefully planned"
27 November 2009
The timing could not have been worse – Dubai asks its creditors for a six-month standstill on its debt, while announcing a restructuring of its investment company Dubai World. And then the Middle East takes a religious holiday.
Cue indiscriminate selling of shares related to the emirate, speculation over banks' exposure the debt pile, surging costs of insuring against default – in short, panic across just about every market in the world. But stony silence from Dubai.
UK, German, Asian, French, German, Irish and Greek markets all took a pummelling yesterday. The only bonus was that the US was closed for Thanksgiving holidays.
By the end of play yesterday, it cost about $500k a year to insure $10m of Dubai's debt, whereas it would have cost around $360k on Tuesday. Similarly, the price of Saudi, Abu Dhabi and Qatar debt all jumped as a result of Dubai's concerns.
The impact locally has yet to be felt, but the lack of information coming from Dubai – largely as a result of the Eid holidays running until Sunday – only added to the chaos in other markets.
In terms of job prospects, the most immediate affect will be to dent the emirate's appeal to international bankers. As one banker told the FT: "I was interviewing someone for a job last night and felt ashamed."
The banks with most exposure to Dubai's debt pile – HSBC ($17bn), Standard Chartered ($7.8bn), Barclays ($3.6bn), RBS ($2.2bn), Citi ($1,9bn), BNP Paribas ($1.7bn) and Lloyds ($1.6n) – all saw their share price slip yesterday. While local banks with most exposure include Abu Dhabi Commercial Bank and Emirate NBD PJSC. Credit Suisse analysts estimate that European banks account for around half of Dubai's $80bn debt.
This morning, Dubai has finally broken its silence, with Sheikh Ahmed bin Saeed al-Maktoum, the chairman of the Supreme Fiscal Committee, saying the move was "carefully planned".
"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," he said. "However we have had to intervene because of the need to take decisive action to address its particular debt burden."
