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Ambivalence from Dubai stokes new fears

Uncertainty about once-booming Dubai’s finances and government support have rattled international markets.

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Uncertainty about once-booming Dubai’s finances and government support have rattled international markets.

DUBAI, United Arab Emirates

If global investors were looking for reassurances from Dubai that it would stand behind its massive, debt-swamped investment conglomerate, they got none Monday. Instead, the emirate seemed to wash its hands of the financial woes that have rattled world markets.

The muddled message from Dubai has fueled worries over a possible default by the conglomerate, which is involved in projects around the world — from gulf banks and ports in 50 countries to luxury retailer Barneys New York.

Many investors are hoping that the conglomerate, Dubai World, will either openly discuss restructuring of some $60 billion in debt with its creditors, or that Dubai's oil-rich neighbor, Abu Dhabi, will step in to restore confidence by pledging to foot bills.

Dubai and Abu Dhabi are the most powerful of the seven highly autonomous emirates that make up the United Arab Emirates, but their sharply different styles have long made them rivals. For any help, Abu Dhabi will likely demand a price, possibly including increased say over Dubai's affairs.

Abu Dhabi, the seat of the emirates' federal government, has been the more conservative, religiously and financially, relying on its oil wealth to fuel growth. Meanwhile, smaller Dubai — without any oil resources — has for the past decade been the freewheeling boomtown, racking up debt as it built extravagant skyscrapers, artificial residential islands and malls complete with indoor ski slopes.

Government-owned Dubai World has been the engine for much of that growth at home and abroad. So it was a bombshell last week when Dubai announced that the conglomerate wanted to defer debt payments until at least May.

The United Arab Emirates' two main stock exchanges registered record declines Monday as they opened for the first time since the announcement, after a long Islamic holiday. The Dubai Financial Market was down 7.3 percent, while Abu Dhabi's bourse was off more than 8 percent.

Global markets leveled after heavy drops last week. Investors appeared to have a better sense of the size of potential losses from Dubai and were reassured for the moment that its woes don't signal a new crunch for credit markets, still recovering from last year's near-shutdown.

But the impact from Dubai's comments Monday could rekindle the same concerns.

Monday, the first comments from Dubai's top financial official were hardly reassuring.

Abdulrahman al-Saleh distanced the emirate from Dubai World's debt, saying that while the conglomerate was government-owned, it was "established as an independent company."

"Given that the company has various activities and is exposed to various types of risks, the decision, since its establishment, has been that the company is not guaranteed by the (Dubai) government," he said on Dubai TV.

Dubai World broke its silence in an announcement early today.

The company said in an e-mail from the Dubai ruler's media office that "constructive" discussions have begun with banks. It said the restructuring would include about $6 billion covered by Islamic bonds issued by its Nakheel subsidiary. Nakheel, which is the real estate developer famous for building Dubai's palm tree-shaped islands, has a roughly $3.5 billion Islamic bond coming due in two weeks and it was considered the litmus test of Dubai World's debt woes.

Dubai World has U.S., Florida assets

Dubai World borrowed billions of dollars to acquire some of the most high-profile commercial developments in the United States in recent years, and it could be forced to sell them at a loss if the conglomerate can't restructure its debts. Among Dubai World's U.S. assets are several luxury hotels, including the Mandarin Oriental, New York, and a 50 percent stake in the Fontainebleau Miami Beach. Dubai World also bought the CityCenter Casino & Resort in Las Vegas for about $5.4 billion. The development, a joint venture with MGM Mirage, is slated to open today. Officials said Dubai World's woes will not derail plans to finish the project.

Ambivalence from Dubai stokes new fears 11/30/09 [Last modified: Monday, November 30, 2009 11:30pm]
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