Relieved investors sent British shares soaring today after it emerged that Dubai World, the state-owned conglomerate at the heart of the country’s debt crisis, had begun talks with creditors to restructure nearly half of its $59 billion (£35.8 billion) borrowings.
Shares on the FTSE 100 jumped 89 points to send the blue-chip index back above the 5,200 mark, to 5,279.74, after a decline yesterday.
Sentiment also improved on the Continent, with markets in Paris and Frankfurt rising by more than 2 per cent each.
Investors were buoyed by “constructive” talks between Dubai World and its creditors to deal with $26 billion of its debts, which will include asset sales.
The emergence of discussions has calmed nerves after the Dubai Government effectively abandoned Dubai World yesterday, stating that it did not guarantee the company’s huge debt mountain.
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The move meant that a number of companies, including British banks, such as Royal Bank of Scotland (RBS), the state-owned lender, faced losing millions of dollars.
However, the prospect of asset sales and a restructure saw shares in RBS rise 3.68 per cent to 34.38p in early trading today. Barclays’ stock rose 3.9 per cent to 303.75p while shares in the London Stock Exchange, in which the Dubai Government holds a 21 per cent stake, rose 3.46 per cent to 779p.
Dubai World said that the restructuring was limited to certain subsidiaries, including Nakheel, the troubled property developer, whose $4 billion Islamic bond due for repayment on December 14 triggered the current crisis, and Limitless World.
DP World, P&O Ferries, Jebel Ali Free Zone and the Istithmar investment fund are excluded from the current process.
Dubai World said that these businesses remained on a “stable financial footing”.
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The discussions also lifted Asian markets overnight.
In Japan, the Nikkei 225 closed up 2.4 per cent before the Government announced a plan to inject $114 billion into the economy, and the Hang Seng index in Hong Kong rose by 274.14 points, or 1.3 per cent.
Sheikh Khalifa bin Zayed al-Nahayan, president of the seven-nation United Arab Emirates, today said that the region’s economy was in good condition.
He also voiced support for Sheikh Mohammed bin Rashid al-Maktoum, the ruler of Dubai, stating that he and his Cabinet “face every morning challenges, but plan to remove all obstacles to score achievements”.
Despite Dubai World’s announcement, stock markets across the Middle East continued to plunge this morning.
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Dubai closed down 5.61 per cent while Abu Dhabi dropped 3.57 per cent as investors continued the sell-off triggered by Dubai World’s debt woes.
Qatari stocks also tumbled a massive 8.3 per cent with the DSM Index closing at 6,598.17 points.
The Kuwait stock exchange, reopening after the Eid religious holiday, closed 2.71 per cent lower.
About $6 billion of the restructuring relates to Nakheel.
Dubai World added: “Nakheel requests its sukuk [bond] holders to appoint an authorised representative with whom discussions can commence”.
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Dubai World said that Moelis & Co has been appointed to advise on the restructuring, working alongside Deloitte and Rothschild.