Dubai World, the state-controlled holding company that is struggling with 59 billion dollars in debt is in hot waters again – the government would not guarantee its debt. According to Abdulrahman Al Saleh, director general of the country’s Department of Finances has issued a statement saying:
“It is correct that the government owns Dubai World, but the decision when it was set up was that it should receive financing based on the viability of its projects, not on government guarantees. The lenders should bear part of the responsibility.”
Dubai’s government said that recently, Dubai World had seek a standstill agreement with creditors and an extension of loan maturities to at least May 30, 2010. The news led to the biggest decline in Asian shares in three months and became Europe’s worst rout since April.
Eventually, it tumbled and Abu Dhabi’s stock index subsequently fell the most in at least eight years on the first trading days since the announcement broke. The Dubai Financial Market General Index dropped 7.3 percent to 1,040.36, the biggest decline by far since October of 2008. More so, Abu Dhabi’s ADX Index fell 8.3 percent, the most since Bloomberg began compiling the data in 2001.
The Dubai World trouble indicates one thing – that the world recession has not yet fully recovered. It is too good to be true. Although, the United States has been reporting a decrease in unemployment rate, which is an indication of economic recovery. However, more and more foreign companies are starting to experience the chain reaction. It just happened perhaps later than United States felt it.
Dubai is the second biggest of seven states that make up the United Arab Emirates. The state-owned companies borrowed about 80 billion to fund an economic boom and diversification. The global credit crisis and a decline in property prices hurt companies like Dubai World as they struggled to raise loans.