DUBAI: Concern over debts at Dubai’s utility provider and losses at Nakheel, builder of the emirate’s palm-shaped islands, hit markets on Wednesday, drowning out assurances by top officials that Gulf economies were sound.

The Dubai debt saga has shaken global investors since the emirate’s shock Nov. 25 announcement that it sought a standstill on Dubai World debt as it restructured the sprawling state firm, which builds and operates everything from ports to luxury flats.

Nakheel, the developer at the centre of Dubai’s debt crisis, added to already battered sentiment on Wednesday after its financial statements showed liabilities jumping 7 percent in the first half to a loss of more than $3.6 billion.

While the Dubai government has tried to ring-fence profitable firms from the $26 billion restructuring at Nakheel’s parent, Dubai World, its debt woes have led to credit downgrades for all government-linked firms amid investor fears that state aid would not be forthcoming in times of trouble.

Ratings agencies said such downgrades could lead to an accelerated payment clause for the $2 billion debt of Dubai’s power and water provider, though a DEWA official dismissed the report as speculation. Adding to confusion among investors, Dubai’s finance chief said on Tuesday the Gulf business hub would need more than six months to restructure Dubai World. A banker close to discussions between Dubai World and its creditors said the firm had yet to show them a proposal.

Underscoring the grim mood, a group representing a potentially blocking minority of holders in Nakheel’s bond has written to Dubai World rejecting a standstill, a source familiar with the matter said on Tuesday. “Investors, especially foreign institutions, want a strong statement from Dubai officials that they’ve found a clear way to help these companies,” said Samer al-Jaouni, General Manager of Middle East Financial Brokerage Co.

“There’s no reason to buy back into the market without having a clear picture on what’s going on. Confidence has been lost.” Dubai’s stock index tumbled to a 32-week low falling 5.9 percent at 0640 GMT with construction and real estate companies all down by the daily limit.

Asia-focused bank Standard Chartered, which is one of Dubai World’s creditors, said any losses it suffers in Dubai were unlikely to be material. Its shares have fallen 12 percent since Dubais’s announcement. Nakheel’s Islamic bond maturing on Dec. 14 fell 3 points to 47 cents on the dollar on Wednesday, compared with 110 just before Dubai World’s announcement.

“This does not really enhance Nakheel’s ability to meet near-term obligations,” said Roy Cherry, vice president research, real estate and construction at Shuaa Capital.

Source: Daily Times

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