LEX The panic provoked by last week’s debt standstill request from Dubai World and property arm Nakheel has come full circle. On Monday, when the main Gulf stock markets reopened, Nasdaq Dubai fell more than 7 per cent and the Abu Dhabi stock exchange more than 8 per cent. Investors, already shocked by Dubai’s confirmation it would not guarantee the public companies’ debt, were told trading had been halted on $5.25bn of Nakheel’s bonds.
The problem is that global investors see the borrowers’ woes as a microcosm of the emirate’s. The latter’s failure to communicate decisively and promptly with the capital markets on which it relies has dented its chances of becoming a credible financial services hub over the coming decade. Still, the United Arab Emirates central bank’s liquidity support for local and foreign lenders should give regional banks a lifeline for now. Although the British banks most heavily exposed to the UAE will not be derailed by the standstill, the same may not be true of regional lenders, which have disproportionately large Dubai exposure – in the case of Abu Dhabi’s banks, about a third of their assets, Morgan Stanley estimates. Local banks are already paying more for funding and will do their best to wriggle out of making big impairments on property lending.
