RBS led Dubai World lenders; HSBC at risk

Sumitomo Mitsui dropped 3.7 percent at the close in Tokyo and Mizuho declined 3.9 percent.

Dubai borrowed US$80 billion in a four-year construction boom that transformed the sheikhdom into a regional tourism and financial hub. It suffered the world's steepest property slump in the global recession, with home prices dropping 50 percent from their 2008 peak, according to Deutsche Bank AG.

“We understand the concerns of the market and the creditors in particular,” Sheikh Ahmed Bin Saeed Al-Maktoum, who chairs the Supreme Fiscal Committee in charge of apportioning financial support to ailing companies, said Thursday in the first statement from the government since it announced the debt rescheduling. “However, we have had to intervene because of the need to take decisive action to address its particular debt burden.”

More information will be “made available early next week,” he said.

Dubai World had US$59.3 billion in liabilities and US$99.6 billion in assets at the end of 2008, subsidiary Nakheel Development Ltd. said in an August statement. Dubai has a total US$4.3 billion of government and corporate debt due next month and US$4.9 billion in 2010's first quarter, Deutsche Bank data show.

Dubai World's biggest creditors are Abu Dhabi Commercial and Dubai-based Emirate NBD PJSC, the United Arab Emirates' biggest lender by assets, according to two people familiar with the situation who declined to be identified because the information isn't publicly available.

The debt owed to Abu Dhabi Commercial adds to problem loans from Saad Group and Ahmad Hamad Algosaibi & Bros Co., the Saudi Arabian family companies that defaulted earlier this year. Abu Dhabi Commercial fell 31 percent from Sept. 17 to Nov. 1 after the bank said it was owed a total US$610 million by the two companies. The stock has risen 22 percent this month. It didn't trade Thursday during the Eid Al-Adha religious holiday.

“Nobody can know how much exposure these banks have got to Dubai unless they choose to tell you themselves,” said Simon Maughan, an analyst at MF Global Securities Ltd. in London. “I don't think Dubai will default, however. Once there's been a bit of horse trading over the weekend, Abu Dhabi will step in and bail out Dubai.”

Moody's Investors Service and Standard & Poor's cut their ratings on Dubai state companies this week, saying they may consider Dubai World's plan to delay debt payments a default.

The cost of protecting Dubai bonds against default has soared to the fifth highest worldwide, exceeding Iceland's and Latvia's, at 530 basis points after the biggest increases since the credit-default swaps began trading in January, according to CMA Datavision prices. Default swaps on Dubai World unit DP World Ltd., the Middle East's biggest port operator, jumped by a record to 612 basis points Thursday.

The contracts, which increase as perceptions of credit quality deteriorate, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point is 0.01 percentage point and is equivalent to US$1,000 a year on a contract protecting US$10 million of debt.

The price of Nakheel's bonds fell to 70.5 cents on the dollar Thursday from 84 cents Nov. 25 and 110.5 cents a week ago, according to Citigroup Inc. prices on Bloomberg.

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