The Dubai government will not guarantee Dubai World's debts, and creditors will be affected in “the short term” by the conglomerate's restructuring, a top Dubai government official said on Monday. Abdulrahman Al-Saleh, director general of Dubai's department of finance, also said market reaction to Dubai World's announcement last week was exaggerated and did not match the extent of the conglomerate's woes. “I think banks are not at a stage where they need any extra liquidity from the central bank,” he said on Dubai TV. Lenders to the conglomerate bear some responsibility for the current crisis and now creditors must help it restructure, he said. They lent money based on the viability of the firm's projects, not because of government guarantees. Al-Saleh said while Dubai owns Dubai World, it has been known since the conglomerate was established that it was independent and that it “is not guaranteed by the government.” Lenders “have deemed Dubai World as part of the government and that is not true,” he said. “Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct.” Conglomerate Dubai World asked creditors last week to delay repayment of billions in debt for itself and property developer Nakheel for six months as it restructured operations. The shock announcement initially sent global markets slumping. Nakheel PJSC, Dubai World's property unit whose $3.52 billion Islamic bond is due Dec. 14, asked the Nasdaq Dubai stock market on Monday to suspend its securities “until it is in a position to fully inform the market.” “The times of implicit support are clearly over,” said Philipp Lotter, vice-president of Moody's Investors Service in Dubai. “In the past entities such as Dubai World certainly represented themselves as quasi-government entities, whereas there was no legal obligation on behalf of the government to support, and that has certainly shifted with last week's announcement.” In the prospectus for its first Islamic bond sale in October, the government said “certain strategic government- related entities of the emirate have significant borrowings which are not direct obligations of the government of Dubai.” The government raised $1.93 billion from local and international investors in the sale. “If any of these entities are unable to, or are potentially unable to, fulfill their debt obligations, the Dubai government, although not legally obliged to do so and without any obligation whatsoever, may at its sole discretion decide to extend such support as it may deem suitable,” according to the prospectus. On Monday, market failed to hit the 10 percent stop-trading cap because a large number of shares were not traded.
