Leadership

Investors scramble on Dubai World announcement

27.11.2009
Global stock markets fell yesterday upon news that Dubai World, the Dubai Government’s flagship holding company responsible for some of the world's most flamboyant real-estate projects, had asked for a standstill agreement on all of its financing until 30 May 2010.

Investors scrambled to sell stocks linked to the region, with bank shares hit particularly hard as concern grew about the level of exposure lenders had to the city state.

The situation was exacerbated by the lack of information about Dubai World’s debt standstill announcement due to the Muslim festival of Eid.

Shares in Dublin fell by almost 3pc, with Irish bank shares hit and the price of government bonds falling.

European shares were also hit and are liable to be weaker upon opening this morning with evidence of some risk aversion returning to the market.

AIB ended down 6pc, while Barclays and RBS fell 8pc with HBSC holdings falling more than 7pc.

The news of the debt standstill yesterday called into question the ability of Dubai to repay its debts, with global credit-rating agency Standard & Poor's saying that Dubai World's announcement “may be considered a default” and “represents the failure of the Dubai government (not rated) to provide timely financial support to a core government-related entity”.

Although the financial system has received quite a jolt, Abu Dhabi does have the luxury of 8pc of the world’s oil reserves, reducing the likelihood of the Dubai World shock being systemic in nature.

However, the prospect of a bailout for Dubai World from Abu Dhabi did little to quell investors’ fears as Asian stock markets plunged today.

All eyes will be on US shares later today when markets there reopen following the Thanksgiving holiday.