DUBAI and ABU DHABI // UAE markets dropped sharply on the first day of trading since Dubai World announced that it would ask for a six-month reprieve from repayment on billions of dollars in debt. Banks and property companies suffered the heaviest selling in the wake of the surprise move by the Dubai state-owned conglomerate, which has also appointed an auditor from Deloitte to oversee a restructuring.
"We have never seen such intense selling pressure," said Imran Chaudhry, an independent investor who went to the Dubai Financial Market (DFM) to place sell orders in the hope of buying back more cheaply later. "There are no buyers." Exchanges in Dubai and Abu Dhabi were scenes of speculation and heavy selling, with millions of shares lined up for sale before the markets opened. Investors said there was a risk of further declines while uncertainty continued over the plans for the troubled group.
In Dubai, DP World, which is 77 per cent owned by Dubai World, fell 14.9 per cent on NASDAQ Dubai, close to the 15 per cent maximum drop allowed by the exchange. On the DFM where the maximum fall is 10 per cent, Emirates NBD lost five per cent and Emaar shed nearly 10 per cent. In the capital, Aldar Properties, Union National Bank and Abu Dhabi National Hotels all fell nearly 10 per cent, the maximum allowed by the exchange.
The Abu Dhabi general index fell by 8.3 per cent, the largest drop in eight years, and the Dubai index lost 7.3 per cent, the most since October last year. Rabee Maraarbi, 31, a Lebanese investor on the trading floor of the Abu Dhabi Securities Exchange, said the sell offs were exacerbated by the lack of details about Dubai World's plans for restructuring and how its planned "standstill" request to creditors would work.
"Officials need to step in and reassure investors to regain trust in the market and restore investor confidence," he said. "I would have loved to buy a week ago, but now buying them in a time of uncertainty might not be a good idea." National Bank of Abu Dhabi (NBAD) was the only bank to disclose its exposure to Dubai World debt before the markets opened. The company's shares fell 9.7 per cent yesterday, in line with drops at other banks.
NBAD said in a statement that it currently holds $114m of Nakheel's 2009 sukuk that comes due on Dec 14. The bank also has outstanding loans of $100m and $125m in corporate loans to Nakheel and Limitless, respectively. The unease over last week's announcement also started to spread to the property sector in Dubai, which has been hit by a downturn that saw prices drop by as much as 50 per cent over the last year.
Aarti Channa, a buyer of a property on the unfinished Palm Jebel Ali island from Nakheel, gathered with other several other buyers at Nakheel's headquarters today to find out what is going to happen to their investments. "We have paid 30 per cent already," Ms Channa said. "After Dubai World's announcement, we investors have really started getting worried." Better Homes, one of the largest property brokerages in Dubai, said in a statement that Dubai World's announcement would "no doubt challenge the fragile recovery of confidence that the city has been experiencing over the last three months".
"We anticipate this lack of confidence to impact the number of people investing in property and new businesses in Dubai over the short-term," the statement said. "However, we do believe that this will be a temporary setback as Dubai and the UAE will take the appropriate steps to both restructure the debt of Dubai World and launch an effective PR and communication programme, while the media frenzy subsides and confidence in Dubai returns."
Dubai still offered an appealing combination of no taxes, high quality infrastructure and a prime location to service the Middle East and Asia, it concluded. World markets have been shaken for the last several days on uncertainty over the Dubai Government's support to its companies, which raised questions about the strength of the recovery in emerging markets. Asian stocks and currencies bounced back today after the Central Bank yesterday pledged to support banks with an emergency lending facility.
The MSCI Asia Pacific Index rose 3.3 per cent to 117.66 as in Tokyo. South Korea's won strengthened the most in a month. Standard & Poor's 500 Index futures added 0.5 per cent. The cost of insuring Dubai's sovereign debt against default also fell after rising on the Dubai World announcement. As of yesterday afternoon, it costs $576,000 to insure $10m of Dubai debt for five years, compared to $647,000 on Friday.
bhope@thenational.ae * With Reuters
