Dubai's main stock exchange plunged for a third straight day Wednesday as investors dumped holdings.
Dubai's main stock exchange plunged for a third straight day Wednesday as investors dumped holdings in the troubled Arab boomtown amid a scramble for details about the depth of its debt woes.
The Dubai Financial Market's benchmark index dropped 6.3 percent at the close, building on steep declines since Monday. The bourse in Abu Dhabi — the oil-rich emirate home to the United Arab Emirates' federal government — tumbled 2.8 percent.
The declines reflected a lack of information about the scope of Dubai's debt pile and how it plans to repay it. Concerns over the government's increasingly clear unwillingness to assume responsibility for the debts of companies that it owns — best illustrated by officials' lack of backing for troubled conglomerate Dubai World — are also weighing on the market, analysts say.
"It's all about the absence of any news, clarity and confirmation of what will happen," said Julian Bruce, director of institutional equity sales at EFG Hermes.
Those concerns have prompted a series of ratings downgrades, the most recent coming Tuesday when Moody's Investor's Service cut the ratings of six government-linked companies, leaving all in junk status.
"There's huge level of uncertainty, and investors are not interested in gaining more exposure to Dubai," Bruce added. "That's why everything is for sale."
The sell-off came as Dubai World's main property developer Nakheel, builder of the city-state's iconic palm-shaped islands, disclosed that it lost 13.43 billion dirhams, or $3.66 billion, in the first half of this year as property values tumbled in the emirate on the back of the global economic meltdown.
Nakheel made the disclosure on the Nasdaq Dubai, where its Islamic bonds are traded. The statement showed the company had amassed nearly $20 billion in liabilities, including loans and accounts that needed to be repaid, through the end of June. It said its assets at the time stood at about twice that amount.
The debt build-up mirrored that of Dubai World — whose sprawling holdings range from ports to real estate and luxury retail — and of Dubai, itself. The conglomerate and the emirate had relied on cheap cash to build up Dubai — one of seven semiautonomous city-states making up the UAE — over the past decade. But the bills are coming due and the money is not there.
That crunch prompted Dubai's government, on the eve of the U.S. Thanksgiving holiday, to announce that Dubai World would seek a six-month "standstill," effectively a delay, on repaying some of its $60 billion in debts.
While the company later said the restructuring would involve roughly $26 billion in debts, and indicated it may sell some assets to raise the cash, it said its profitable ports and related free zone operations would be exempt from the restructuring. Also off the table was its private equity division Istithmar World and Infinity World Holding, the co-owner of Las Vegas' new $8.5 billion CityCenter hotel and casino complex.
Dubai World looked to isolate other assets from the restructuring, announcing late Tuesday that its shipbuilding and repair arm Drydocks World will not be included in a restructuring.
"Drydocks World continues to have sufficient financial capacity to service its debt and remains well positioned to take advantage of the expected improvements in the shipbuilding and offshore industries in the coming years," the company said.
The division has $1.7 billion in debt coming due in 2011, and another half a billion two years later, according to Morgan Stanley research.
Analysts say Dubai World appears to be drawing a line between profitable and other "good" assets it hopes to keep, and more toxic holdings that are loaded with debt.
Drydocks World runs the largest shipyard in the Middle East, servicing an average of 400 oil tankers and other ships per year, according to its Web site.
Even as it tries to fence off more valuable assets, Dubai is coming under mounting pressure from creditors that have loaned the emirate's web of state-run companies more than $80 billion.
Dubai World's Istithmar lost ownership of the W Union Square New York hotel in a foreclosure auction Tuesday. Istithmar acquired the hotel in October 2006 for $285 million, according to Real Capital Analytics, a data tracking firm.
Also in trouble was The Fontainebleau in Miami Beach. The Dubai World property's $660 million loan was due in August. Contractors also claim the owner of the historic hotel owes them $60 million.
Creditors increasingly fear Dubai's debt problems could spread beyond Dubai World to the other state-linked companies known informally as "Dubai Inc."
Those concerns were evident in the market Wednesday, as the slide in the DFM's benchmark index pushed the market more than 6 percent below its year-ago level.
Analysts at Barclays Capital said in a research report that Dubai Holding, an investment company controlled directly by Dubai's ruler, could be "next in line" with credit problems.
"We believe that the market is pricing in a swift and orderly restructuring with no lasting effect on Dubai Inc.," Barclays analysts wrote. "We would argue that there is little chance of this materializing, and at this point, risk is skewed to the downside."
