Dubai World's debts won't be guaranteed by the government

Dubai government doesn’t intend to guarantee Dubai World's debts, government official said on Monday. That means creditors will be affected by the conglomerate's restructuring in "the short term".

As Abdulrahman al-Saleh, director general of Dubai's department of finance reported, market reaction to Dubai World's announcement last week was amplified and did not match the extent of the conglomerate's woes. 

"I think banks are not at a stage where they need any extra liquidity from the central bank," he said on Dubai TV. "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." 

 Last week Conglomerate Dubai World asked creditors to delay repayment of billions in debt for itself and property developer Nakheel for six months as it restructured operations. Obviously, this shock announcement initially sent global markets plummeting. 

 As ratings agency Moody reported harmful effects for Abu Dhabi from the restructuring of Dubai World debt will be "unavoidable" as doubts will be raised as to how Dubai is going to finance its growth and the restructuring could lead to downgrades for United Arab Emirates bank ratings.

"The form of the proposed debt restructuring could increase the likelihood of downgrades of bank financial strength ratings (BFSRs) for the UAE banks that are already on review." Moody's said the potential default of quasi-sovereign Dubai World "changes long-held market assumptions regarding implicit government support of local credits".