Dubai's Market Slides 7 Percent; Dow Okay

Nov 30, 2009— -- The Dubai Financial Market slid 7 percent today, the first day of trading after the emirate announced that conglomerate Dubai World would have to delay payments on its $60 billion debt.

Markets in Abu Dhabi, Dubai's sister emirate and long assumed to be its financial guarantor, also fell 8 percent, reflecting the decline in world markets that hit after Thursday's news about Dubai's debt woes.

By Monday global stocks recovered somewhat from the hit. Asian markets gained 2-3 percentate points, while in the U.S. the Dow Jones Industrial Average was little changed.

Questions remain over the state of Dubai's debt and whether Abu Dhabi would come through with a bailout. In February the Central Bank of the United Arab Emirates, a federation of seven states led by Abu Dhabi, loaned Dubai $10 billion to help cover urgent debt obligations. On Sunday, however, the federal authority said it would "pick and choose" how it helps Dubai and its ailing companies.

The most prominent firm facing insolvency is real estate giant Nakheel, a Dubai World subsidiary known for lavish developments like two man-made Palm Islands and "The World," islands in the shape of the global map. Other Nakheel projects have been slowed or stopped as the company ran low on cash. A Trump Tower on the Palm Jumeirah, plans for luxury stilt homes in the shape of Arabic poetry, and the conversion of the Queen Elizabeth 2 into a 5-star hotel have all been slowed or shelved.

Signs of the downturn emerged in Dubai more than a year ago as investors and analysts began wondering whether Dubai could pay for so many projects built on credit and excess, projects that seemed out of synch with real estate demand in a world reeling from recession. In the months that followed, allegations of corruption, embezzlement, and wasteful spending hit a broad swath of executives at some of Dubai's preeminent companies, including subsidiaries of Dubai World.

In that climate of criticism over how Dubai financed its boom years, doubts have emerged over whether Abu Dhabi would come to the city's rescue.