Top official rejects Dubai debt default possibility

Dubai : A top Dubai official has rejected any possibility of a debt default, ahead of a December 14 deadline to pay a $3.5 billion sukuk.

"[Reports of a Dubai default] were inaccurate, it was unnecessary blind panic, it was a misunderstanding of the status of Dubai, which indeed is a centre of trade and economic activity, it was lack of knowledge of how much debt was the subject of the announcement and how it is related to the government debt," Abdul Rahman Al Saleh, Director-general of the Department of Finance, said in a speech yesterday.

"The reactions were caused by asymmetric information of the situation in Dubai," he said.

Dubai has positioned itself as a global centre of modernity, high finance and high-tech projects, education and culture, from universities to sports, art galleries and museums, he continued.

"Dubai has become a land of economic opportunities and in a very short time attracted international attention and investments. Brand Dubai has been built for decades on the basis of being a global business centre, perfectly located and commercially astute," he said.

His comments were welcomed by investors as Dubai Financial Market rebounded to close 7 per cent up, from a decline of 4.6 per cent in morning trading.

"Economic growth in Dubai will return in different ratios, ranging between 2-3 per cent in the first quarter of 2010, and returning to its normal growth rates by the onset of 2011," said a report issued by the Dubai Department of Economic Development.

Meanwhile, Dubai Electricity and Water Authority (Dewa) yesterday denied reports that it may repay Dh7.34 billion ($2 billion) in bonds before they mature as speculation.

Explaining the current situation, Al Saleh said the effects of the boom-bust cycle of psychology are amplified when investors use leverage.

"Borrowing to purchase assets is lucrative when asset prices are rising, because all the upside beyond the interest costs goes to the investor, not the lender. However, when times are bad and asset valuations are falling, investors' losses are magnified by leverage."