News Archive
Global fear and loathing at Dubai’s default specter
Released on 27/11/2009
Stocks and commodities plummeted and currencies seesawed after Dubai asked for a six-month breather to reschedule its US$80bn debt load in November.
The dollar fell to a 14-year low and banks, construction firms and manufacturers saw share prices fall as the fear of Dubai defaulting on its debts rippled around the world.
“If Dubai has to default, that could start a wave of defaults in other areas,” Mark Mobius the chairman of Templeton Asset Management Ltd. told Bloomberg Television. “This may be the trigger to allow for the market to take a rest and pull back.”
The MSCI Asia Pacific Index slid 3.3 percent in Tokyo, the biggest drop since August. The Dow Jones Stoxx 600 Index of European shares declined 1.4 percent and Standard & Poor’s 500 Index futures plunged 3.38 percent. The FTSE 100 tumbled more than 3%, its biggest one-day fall since March 2009, though trading was halted for three hours by a computer failure.
The yen gained as much as 2 percent against the dollar. Both currencies rallied against the Australian dollar, the South Korean won and the Russian ruble as investors shunned riskier assets.
Dubai shocked investors Nov. 25 by asking creditors for a six-month debt holiday while it works out how to pay back the US$80bn it owes. Nearly $60m of Dubai’s overall $80bn debt is held by Dubai World, the state-run umbrella organ that runs a host of big-name Dubai companies that drove expansion across real estate, ports, leisure, retail, banking and other sectors throughout the boom years.
One of these companies is Nakheel, the property developer behind the three iconic ‘Palm’ island developments off the coast. Foreign and UAE construction companies, such as Arabtec, are reported to be awaiting payment totalling more than US$1bn.
Banks were hardest hit at the news. HSBC Holdings Plc tumbled 7.6 percent, while Standard Chartered Plc sank 7.5 percent.
Makers of electronics and cars fell in Japan as the yen’s gain threatened to erode overseas earnings. Sony dropped 4.4 percent. Honda lost 3.8 percent.
Share prices for Japanese building companies fell on news. Obayashi Corp. dropped 8.7 percent, while Kajima Corp. slid 14 percent. British firms were also hit. Korea’s Samsung C&T Corp., which is building the Burj Dubai, tumbled 8.1%
