The ruler of Dubai hit out at international investors yesterday as his government's impecunious investment vehicle revealed plans to restructure $26bn of its debts. Sheikh Mohammed al-Maktoum said: "They do not understand anything."
The Gulf city-state's problems began last week when the highly leveraged Dubai World requested a standstill agreement on a $3.5bn (£2.1bn) bond issued by its Nakheel real estate subsidiary which was due in mid-December. Nakheel is the developer most exposed to the collapse of Dubai's property market. After days of uncertainty that sent shudders throughout the world's stock markets, Dubai World finally unveiled plans to address the liabilities of its two property ventures – Nakheel and Limitless – after midnight on Monday night.
The timing of Dubai's request for a debt standstill, on the eve of the four-day Eid holiday, drew criticism from financial communities across the globe. But in his first public comments since the crisis broke, Sheikh Mohammed had harsh words for investors and remained bullish about Dubai's economy. "We are strong and persistent," he said. "It is the fruit-bearing tree that becomes the target of [stone] throwers."
Dubai World says its restructuring plans will not include the vast conglomerate's "financially stable" units, such as the DP World ports business, the Istithmar investment fund and the Jebel Ali Free Zone – an economic area offering business services, infrastructure and tax breaks. The process will cover several phases including assessment of stakeholders' long-term plans, determination of profitability and consideration of asset sales.
Discussions with the banks are "proceeding on a constructive basis" and are expected to conclude swiftly. In the meantime, contrary to its performance so far, Dubai World is to "adopt a policy of regular communication and will provide further updates as this process develops".
About $6bn of the $26bn total debt relates to Nakheel's three sukuks, or Islamic bonds. Bondholders have been asked to pick representatives "with whom discussions can commence". The law firm Ashurst has already been appointed by a group of creditors holding more than a quarter of the Nakheel bond that matures later this month.
Clarity about the extent of Dubai's troubles led to a rally in the US markets on Monday. The FTSE 100 jumped 1.5 per cent when it opened in London yesterday and closed more than 2 per cent higher. But the Gulf's stock exchanges responded less favourably. After a torrid day on Monday – the first day of trading after Eid – Nasdaq Dubai dropped another 3.6 per cent yesterday, while Abu Dhabi's bourse lost 5.6 per cent and Qatar's more than 8 per cent.
In the UK, bank stocks have largely recovered the £14bn lost when last week's revelations from Dubai raised fears of further massive writedowns. Yesterday, Fitch Ratings confirmed that the creditworthiness of the major institutions was unlikely to be affected. Early reassurances to the sector came at the weekend when the UAE Central Bank created an emergency liquidity facility for both local and international banks. In a further sign that concerns in the Gulf are easing, the UAE interbank rate fell slightly yesterday. The cost of insuring Dubai's debt is also falling, although it is still considerably higher than it was before the crisis hit.
Despite the Sheikh's strong words, Dubai has a lot of convincing to do. Moody's latest estimates suggest that the government and related entities could owe as much as $100bn, rather than the widely publicised $80bn. "The short term impact could be quite severe for the city-state," the credit agency said. "Dubai World is one of the largest government-owned conglomerates, with tentacles that reach into almost every sector of the economy."