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Dubai 'not responsible for flagship firm debt'

DUBAI: Dubai's government yesterday said it was not responsible for the debts of its flagship conglomerate, offering little clarity on a plan to delay billions in debt repayments that has rattled world markets.

Dubai last week raised fears of a second bout of global financial turmoil by asking for a six-month repayment freeze on debt issued by Dubai World and its unit Nakheel.

Analysts said a statement by Dubai's leading finance official shed little light on how much investors could lose in the process.

"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," said Abdulrahman Saleh, director general of Dubai's department of finance.

Saleh told Dubai TV that banks did not need extra liquidity and that the market reaction to Dubai World's restructuring had been overblown.

Dubai made its announcement on the eve of a holiday, sending global markets into a tailspin as investors awaited details of what it would mean for Dubai World's $59 billion in debts.

Asian stocks rebounded earlier yesterday from last week's declines but markets in the UAE plummeted when they reopened after the Eid Al Adha holiday.

Dubai's market saw its biggest one-day decline since October 2008, and Abu Dhabi's bourse saw its biggest ever fall. Saleh's comments came after the markets had closed 7-8 per cent down.

European shares fell more than 1pc.

"(This announcement) means that the banks are going to have an issue," said Vyas Jayabhanu, head of investments at Al Dhafra Financial. "We still expect some action by the federal government eventually, otherwise it will ruin the economic sector."

Jebel Ali Free Zone, another Dubai World subsidiary, made a scheduled coupon payment on its 7.5bn UAE dirham ($2.04bn) Islamic bond, a source said.

The UAE's central bank governor said there was no cause for concern about local banks, which he said had proven themselves able to weather the global crisis, the state news agency WAM reported.

"Sultan Nasser Al Suweidi said .. he did not see any reason for concern because UAE banks have increased their capitals and as commercial banks have proven their ability to face the consequences of the world financial crisis," WAM said.

Meanwhile, Singapore's top lender DBS Group said its total exposure to Dubai is about $1.28bn.

Italian construction group Trevi Finanziaria Industriale has limited exposure to Dubai and contracts there have already been paid, co-chief executive Cesare Trevisani said.

In Paris, Airbus dismissed any concerns over the impact of the crisis on top customer Emirates, saying the airline was meeting its payments and would stick by expansion plans that call for dozens of new planes.



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