DIC debt request weighs on markets

Early gains wiped as local bourses close in the red

The Dubai debt story continues to weigh on investor sentiment. While perhaps not as bad as the news that hamstrung equities markets when Dubai World announced its restructuring in November, Dubai International Capital's (DIC) three-month debt extension request to lenders late last Thursday is an added burden on markets. "The DIC announcement was widely anticipated and mostly priced in but it makes it difficult for the markets to recover from recent sharp declines," said Saud Masud, the head of research at the Swiss Bank UBS.

"It will be an anomaly if more Dubai Holding entities did not follow DIC but, for investors, the concern is what the extent of those debts would be." Both the Dubai Financial Market (DFM) General Index and the Abu Dhabi Securities Exchange (ADX) General Index were caught up in the region-wide selling spree last week as mounting worries on euro-zone sovereign debt and sliding prices of crude hit GCC equities markets.

The Saudi Tadawul All-Share Index was the biggest loser, dropping more than 8 per cent over the past week, from 6401.06 to 5862.31, with petrochemical stocks taking a beating. The DFM dropped from 1691.71 to 1605.22 last week and the ADX fell to 2641.10, from 2780.63. Aldar and Emaar took the brunt of selling, losing 11 and 8.8 per cent of their value last week respectively, according to data compiled by the German lender, BHF Bank.

While local markets recorded early gains yesterday, concerns over DIC debt proved a headwind, dragging the markets down to close in the red. Dubai shares closed 0.3 per cent down while the Abu Dhabi main index retreated 0.2 per cent. Light, sweet crude oil rose more than 4 per cent over Thursday and Friday, ending the week at US$73.97 a barrel on the New York Mercantile Exchange. "The DIC debt restructuring would still be lurking in the back of the minds, but if oil prices recovered the way they did recently, we might see international story taking over the local factors," said Ingmar Burgardt, the head of BHF in Abu Dhabi. "We think investors are searching for more details on this issue which is still unfolding."