Dubai refuses to promise financial cover

Dubai refused to cover the huge debts of its commercial subsidiary company today despite a record fall on its stock market.

On the first day of trading since news of Dubai World’s financial problems became public, the main stock exchange dropped more than 7% while the Abu Dhabi exchange fell more than 8%.

Driving the financial avalanche was last Wednesday’s announcement that conglomerate Dubai World would seek an at least six month reprieve on its 60 billion dollars in debts, amassed during years of a building spree that turned the desert emirate into the Middle Eastern version of Las Vegas, Wall Street and, at times, Sodom and Gomorra, all rolled into one.

If markets were looking for reassurances from Dubai that it would stand behind the conglomerate, they got none today.

“Dubai World was established as an independent company, it is true that the government is the owner, but given that the company has various activities and is exposed to various types of risks, the decision, since its establishment, has been that the company is not guaranteed by the (Dubai) government,” Abdulrahman al-Saleh, director general of Dubai’s Finance Department, said.

“Consequently, the company’s dealing with the various parties has been on this basis,” he said.

Al-Saleh’s comments were the first public remarks by a Dubai official since Thursday.

The lack of clarity or direction from the rulers of Dubai since the extent of the conglomerate’s financial ills became known has been a major source of worry for investors.

Uncertainty about what step the emirate would take next had cast a pall on world markets late last week.

Investors returned to Dubai and Abu Dhabi’s markets today with little news and plenty of questions. As a result, stocks took a dive.

Shares of Emaar Properties, the UAE’s biggest developer, for example were down 9.86% to 3.75 dirhams.

The overwhelming majority of companies whose shares traded on the Dubai Financial Market, the city-state’s main bourse, were also deeply in the red. But the market failed to hit the 10% stop-trading cap largely because a large number of company shares were not traded.

Asian markets rebounded today after taking a tumble late last week while European markets were down slightly.