Market jitters as Spain joins Dubai on danger list

Fears about corporate and sovereign debt continue to loom over markets as Standard and Poor's revises Spain's outlook to 'negative'

guardian.co.uk, Wednesday 9 December 2009 14.24 GMT

Worries about corporate and sovereign debt continued to overshadow world markets as Spain became the latest country to come under the spotlight and there was more evidence of Dubai's troubles.

A day after Greece's credit rating was cut amid rising concern about the state of its finances, the ratings agency Standard & Poor's revised its outlook on Spain to negative and warned that the country faced a risk of a debt downgrade in two years if the government did not take tough action. Spanish bank shares fell on the news adding to existing market nervousness about the ability of Greece to pay its debts.

As Greek financial markets took a pounding Greece's prime minister George Papandreou vowed to do whatever it took to check the country's huge deficit. "We must close the credibility gap to survive as a sovereign and cohesive nation," he told a televised cabinet meeting.

In Dubai, Nakheel, the property developer behind the palm-shaped islands that have come to symbolise the country's excess, reported a 13.43bn dirham (£2.25bn) loss for the first half of the year. Dubai markets fell sharply for the third successive day on the news.

The business, part of Dubai World, which is attempting to restructure $26bn (£15.9bn) of debt, wrote down the value of its assets during the first half, from 155.5bn dirhams to 147bn dirhams, reflecting the deep fall in property values over the past year. Property prices have plunged by about 50% since the global economy started to slip into recession.

The company said it would pare back further capital expenditure by scaling down or mothballing some developments that had been planned for after 2012. It said the impairment charge "relates to the writedown in the value of land to current fair market levels and the writedown of certain properties under construction relating to projects that have been delayed or scaled back".

The cost of insuring Dubai's debt against restructuring or default rose again as investors grew steadily more anxious about the ability of Dubai World to cope with its debts.

The state-owned company stunned world markets two weeks ago when it said it would seek a six-month standstill on debt repayments, while it attempted to restructure the business. The government later prompted fury by refusing to stand behind the company and assume responsibility for the debts, despite its being a state-owned entity.

Dubai's finance chief on Tuesday admitted that it would now probably need more than six months.

Credit rating agency Moody's this week downgraded six Dubai government-related companies because of the perceived lack of support from the state.

Investors, including British banks Royal Bank of Scotland and Lloyds, are still assessing potential losses. As well as the property assets, Dubai World owns the former P&O – part of a wider ports business.

The Dubai financial market's benchmark index fell by 6%, with the declines of the past three days wiping out a year's worth of gains. One of the biggest fallers was Emaar Properties, the company behind the world's tallest tower, which is yet to be completed, and in which the government holds a roughly one-third stake. The bourse in Abu Dhabi, the oil-rich state and the home of the United Arab Emirates federal government, fell by over 2.7%.

Dubai World is shouldering total debts of about $60bn (£36.9bn), but has indicated that it intends to ringfence the profitable parts of the conglomerate, including the ports business and its private equity arm, Istithmar World.

In a sign that Dubai World may struggle to hold on to its prized assets, Istithmar lost its W Hotel in Manhattan in a foreclosure auction for $2m (£1.23m) on Tuesday, after buying the property for $282m (£173.6m) in 2006.

Analysts at Barclays Capital have warned that Dubai Holding, an investment company directly controlled by Dubai's ruler could be "next in line" with credit problems.

http://www.guardian.co.uk/business/2009 ... eel-losses