Markets fall after Dubai seeks break in repayment

IRISH and European stocks experienced their biggest fall in seven months yesterday as fears grew that failure by Dubai to repay $60 billion (€40bn) in debt could trigger the biggest sovereign default since Argentina in 2001.

Markets were rocked as Dubai World sought a standstill agreement from creditors for the massive amounts owed.

London Stock Exchange Group, whose largest shareholder is Borse Dubai, suffered its biggest fall since April, Bloomberg said.

In Dublin the impact of the fallout from Dubai was felt across a range of stocks, and the ISEQ 100 Index fell 2.84%. Banks were among the fallers, with AIB down 13 cent to €1.60, a dip of 7.57% on the day.

Bank of Ireland which last night confirmed it has a modest exposure to the debt laden group in Dubai, suffered a much smaller percentage fall in its stock.

It was down 3 cent to €1.68, a decline of 1.82%.

However, Kerry Group bucked the trend on the day of bad news, rising 4c to €20.14 on the day.

Credit Suisse has estimated that European banks have lent €13bn to heavily indebted Gulf state Dubai.

The report came after Dubai shocked investors by moving to suspend some repayments. Dubai’s government rattled financial markets when it said it would ask creditors of its Dubai World conglomerate for a debt moratorium of at least six months.

Ratings agency Standard & Poor’s described this as a “default”. Moody’s Investors Service and Standard & Poor’s said they may also label the state-controlled Dubai World’s plan to delay debt payments a “default”.

The sheikhdom borrowed $80bn in a four-year construction boom that reduced its reliance on falling oil supplies and created the region’s tourism and financial hub.

“Dubai is the most indicative of the huge global liquidity boom. And now in the aftermath, there will be further defaults to come in emerging markets and globally,” said Nick Chamie, head of emerging-market research at Toronto-based RBC Capital Markets.

Credit-default swaps across the region have risen, with Saudi Arabia climbing 11.5 basis points to 86.5 and Qatar rising 5.5 basis points to 99, according to London-based CMA.

Unlike Argentina, which stopped payments on $95bn of debt after yields on benchmark bonds more than doubled to more than 40%, Dubai’s announcement “was a surprise”, said Alia Moubayed, a London-based economist at Barclays.