Dubai World debt woes weigh down Dubai market for 3rd consecutive day

Dubai bourse drops for third day

DUBAI, United Arab Emirates — Dubai’s largest stock exchange plunged for a third day Wednesday as investors fretted over the planned restructuring of Dubai World, the emirate’s chief conglomerate which is grappling with roughly $60 billion in debts.

The Dubai Financial Market’s benchmark index was off over 6.3 percent by early afternoon, building on steep declines since Monday that have erased a year’s worth of gains in the market. The bourse in Abu Dhabi — the oil-rich emirate home to the United Arab Emirates’ federal government — was off by over 2.7 percent.

The declines appeared to reflect investor concerns both about Dubai World’s debts and Dubai’s increasingly clear unwillingness to assume responsibility for the liabilities of companies that it owns. Those concerns have prompted a spate of ratings downgrades, the most recent coming Tuesday when Moody’s Investor’s Service cut the ratings of six government-linked companies, leaving all in junk status.

Shares of Emaar Properties, in which the Dubai government owns a roughly one-third stake, were down over 9.8 percent. The real estate developer was one of the companies which had its creditworthiness cut by Moody’s.

The falls came even as Dubai World — whose sprawling holdings range from ports to real estate and luxury retailers — said in a statement late Tuesday that its shipbuilding and repair arm Drydocks World will not be included in a restructuring launched late last month.

An announcement by Dubai’s government on the eve of the U.S. Thanksgiving holiday said Dubai World would seek a six-month “standstill” — effectively a delay — on repaying some of its $60 billion in debts.

While the company later said the restructuring would involve roughly $26 billion in debts, and indicated it may sell some assets to raise the cash, it said its profitable ports and related free zone operations would be exempt from the restructuring. Also off the table was its private equity division Istithmar World and Infinity World Holding, the co-owner of Las Vegas’ new $8.5 billion CityCenter hotel and casino complex.

“Drydocks World continues to have sufficient financial capacity to service its debt and remains well positioned to take advantage of the expected improvements in the shipbuilding and offshore industries in the coming years,” the company said in the statement Tuesday

Analysts say Dubai World appears to be drawing a line between profitable and other “good” assets it hopes to keep and more toxic holdings that are loaded with debt. The company’s latest announcement puts Drydocks World in the former category.

Drydocks World runs the largest shipyard in the Middle East, servicing an average of 400 oil tankers and other ships per year, according to its Web site. The yard has been in operation since 1983.

The division has $1.7 billion in debt coming due in 2011, and another half a billion two years later, according to Morgan Stanley research.

Even as it tries to fence off more valuable assets, Dubai is coming under mounting pressure from creditors that have loaned the emirate’s web of state-run companies more than $80 billion.

Dubai World’s Istithmar lost ownership of the W Union Square New York hotel in a foreclosure auction Tuesday. Istithmar acquired the hotel in October 2006 for $285 million, according to Real Capital Analytics, a data tracking firm.

The W was not the only Dubai World hotel in trouble. The Fontainebleau in Miami Beach is also in dire financial straits. The property’s $660 million loan was due in August. Contractors also claim the owner of the historic hotel owes them $60 million.

Creditors increasingly fear Dubai’s debt problems could spread beyond Dubai World to the other state-linked companies known informally as “Dubai Inc.”

Those concerns were evident in the market Wednesday, as the slide in the DFM’s benchmark index pushed the market more than 6 percent below its year-ago level.

Analysts at Barclays Capital said in a research report that Dubai Holding, an investment company controlled directly by Dubai’s ruler, could be “next in line” with credit problems.

“We believe that the market is pricing in a swift and orderly restructuring with no lasting effect on Dubai Inc.,” Barclays analysts wrote. “We would argue that there is little chance of this materializing, and at this point, risk is skewed to the downside.”