Markets hit as fears over Dubai debt rekindled

Investors switched their attention to the Gulf yesterday as markets reacted to fears that a restructuring plan from the state-owned conglomerate Dubai World would pay creditors only 60 per cent of the money they are owed.

With sovereign debt fears high after Europe's leaders failed to detail a bailout for Greece last week, the reports of Dubai World's limited repayment plans added fuel to the fire.

Even though Dubai tried to play down the talk, its stock market fell and the cost of insuring five-year Dubai debt against default, as shown by credit default swap prices, rocketed to its highest level since March.

Debt holders will receive 60 cents for every US dollar loaned to the company after seven years guaranteed by the Dubai government with no interim interest payments, sources close to the plans told the Zawya Dow Jones news service. Alternatively, creditors could receive full payment over the same period, without government support, with 40 per cent of their Dubai World debt given in the form of Nakheel assets, the parent company's property business.

A restructuring of Dubai World's $22bn debt, after a six-month standstill unveiled in November, is expected by April.

Sovereign debt worries have given renewed popularity of financial acronyms. Greece's troubles brought the acronym "Pigs" (Portugal, Ireland, Greece and Spain) to fame, but yesterday's events gave fresh license to traders to say "Stupid" (Spain, Turkey, the UK, Portugal, Italy and Dubai).