Western investors confidence shaken by Dubai's debt issue

11:34, November 27, 2009      

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Confidence of Western investors across the Gulf has been shaken by the Dubai government's shock decision to ask creditor banks for six-month delay on its massive debt repayments on Thursday.

Western investors turned to the oil-exporting Gulf region for help during the global financial crisis.

But now European stock markets dropped sharply on the news, with European exchanges particularly hard hit. Paris and Milan each plunged by more than three percent in afternoon trading on Thursday.

The U.S. markets were closed for the Thanksgiving holiday and the dollar edged up from 14-year lows as renewed risk aversion prompted investors to shed riskier assets.

Meanwhile, global financial markets have also been rocked as the emirate struggled to ease fears of debt default.

However, a Dubai's senior official said the suspension of payments on Dubai World was "carefully planned" and done in full knowledge of how the markets would react.

"Our intervention in Dubai World was carefully planned and reflects its specific financial position," Sheikh Ahmed bin Saeed al-Maktoum, chairman of the Supreme Fiscal Committee, said in a statement.

He added that "further information will be made available early next week."

Dubai said on Wednesday it would ask creditors of Dubai World, the conglomerate behind its rapid expansion, and Nakheel, builder of its palm-shaped islands, to agree to a standstill on billions of dollars of debt as a first step toward restructuring.

The news also sent a fresh shudder through emerging markets. The weakness extended to Latin America, where the Mexican peso was knocked off a 1-year high and Brazilian assets sank.

Global credit rating agency the Standard&Poor's, which rules on a company's or government's ability to repay debts, said the shock decision "may be considered a default."

Dubai has seen a surge in extravagant building projects, with vast skyscrapers springing up in the desert state, but it has suffered in the global financial crisis. Most of its debt is held by state-backed companies.

Dubai World, which reportedly has 59 billion dollars in liabilities, owns a range of businesses including international ports operator DP World and giant property developer Nakheel.

Source: Xinhuanet

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