- The Washington Times - Wednesday, December 2, 2009

DUBAI, United Arab Emirates | Dubai’s ruler tried to calm panicky investors Tuesday with a message that all was well in the freewheeling city-state after the largest government-owned company shook global markets by saying it needed to delay payments on its $60 billion in debt.

Dubai World, one of the government’s chief investment arms, has stakes in holdings ranging from luxury retailer Barney’s New York to a grandiose six-tower hotel-entertainment complex in Las Vegas. In its first statement since revealing its debt problems last Wednesday, the conglomerate said it had started negotiations with creditors on restructuring some of its debt.

Dubai is one of seven highly autonomous statelets that make up the United Arab Emirates, and the UAE’s two biggest markets tumbled for a second straight day. The Dubai Financial Market sank 5.61 percent on Tuesday after plunging 7.3 percent on Monday, and neighboring Abu Dhabi’s bourse closed down 3.57 percent following an 8 percent slide a day earlier.

In his first public statement on the crisis, Dubai’s ruler, Sheik Mohammed bin Rashid Al Maktoum, tried to contain the damage with reassuring words.

“Our economy is strong and solid and consistent,” he told Al-Arabiya satellite television. He blamed the media, saying it fueled the market angst with doomsday reporting of the conglomerate’s crisis - comments unlikely to shore up confidence in his stewardship of the emirate.

Any comfort from the latest statements was likely to be overshadowed by uncertainty over how Dubai would tackle its debt mess. Analysts say the crisis is symptomatic of a broader malaise in Dubai. Unlike Abu Dhabi, the oil-rich neighbor that serves as the seat of the UAE’s federal government, Dubai lacks oil wealth, and its propensity to spend big using the cheap credit available over the past few years means it has leveraged itself to the hilt.

For the past decade, Dubai has promoted itself as a boomtown, racking up debt as it built extravagant artificial residential islands, malls complete with indoor ski slopes and the world’s tallest tower. Such holdings, along with a massive push in infrastructure development, helped both Dubai World and Dubai build up a combined debt load that Moody’s Investor’s Service estimates could be as high as $100 billion.

Dubai World announced Tuesday that it had begun negotiating a debt restructuring that would include about $6 billion in Islamic bonds issued by its real estate arm, Nakheel, the company behind Dubai’s iconic, palm-shaped artificial islands. About $3.5 billion of the bonds come due Dec. 14.

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