Dubai World to restructure debt, bonds downgraded (Roundup)

Dec 3, 2009, 14:14 GMT

Dubai - The United Arab Emirates' minister of economy said Dubai World would restructure its debt and pay its obligations, according to WAM, the official news agency, but rating agencies continued to lose confidence in firms in the city-state.

'We are surprised by this negative campaign (targeting) the UAE and Dubai. The city has accomplished a strong track record of growth that would have taken decades for other countries to achieve,' Sultan bin Said al-Mansouri said in a statement late Wednesday.

He said it was only 'a matter of time' before Dubai World would restructure its debts and honour its commitments.

Rating agencies downgraded the bonds of Dubai government-related companies, on concerns they could not repay the debts. Dubai Holding Commercial Operations Group was among the main players to be downgraded.

The banking sector was also hit with lower confidence from agencies owing to exposure to Dubai World, and National Bank of Dubai was among four banks downgraded by S&P to junk.

The government earlier this week, washed its hands of Dubai World's debt, saying it would not back the obligations of the company.

British banks are believed to be the foreign financial institutions with the most exposure to Dubai, according to the Financial Times.

In a research note, EFG-Hermes, the Cairo-based investment bank, said it believes that 'concerns over the solidity and value of the implicit state guarantee will raise borrowing costs.'

Analysts there also expected the real estate sector to continue to see a drying up of liquidity.

Meanwhile, the International Monetary Fund has said the steps taken so far would help stem contagion from the announcement last week by Dubai World that it would need a six-month freeze on its obligations.

The company racked up 59 billion dollars in liabilities and said it was restructuring 26 billion dollars of obligations.

The central bank said earlier this week that it was ready to supply liquidity to banks to shore up the financial sector and stem the fallout from the Dubai World debt crisis, and the economy minister implied some money had been lent out already.

The IMF expected to revise downwards its growth forecast for the UAE's non-oil sectors, following the debt crisis.