Uncertainty and opacity are bad for markets, a fact amply illustrated by stalled talks over a restructuring of US$22 billion (Dh80.8bn) of debt at Dubai World. As anybody who has engaged in rumour-mongering knows, the absence of information is an invitation for speculation. Few details have emerged about restructuring talks that began in December between the government-owned Dubai World and seven banks - HSBC, Lloyds, Royal Bank of Scotland, Standard Chartered, Bank of Tokyo Mitsubishi, Emirates NBD and Abu Dhabi Commercial Bank - despite their undeniable importance.
As long as the outcome of those talks remains uncertain, however, regional markets are likely to remain volatile. That was the case again yesterday, when stocks on the Dubai Financial Market (DFM) declined by more than 1 per cent. The bourse is down more than 20 per cent since Dubai World first requested a debt standstill on November 25. Without solid cues, investors are forced to trade on rumour, innuendo and a sprinkling of fact, all of which have been eagerly supplied by wire services and newspapers. As the story of the restructuring talks emerges in pieces, investors in local stock markets and debt securities are in the uncomfortable position of not knowing what news to believe, despite having a lot of money riding on the outcome of the negotiations. At the moment, we know Dubai World is expected to reach an agreement soon on a standstill under which it would continue to pay interest on $22bn of debt, but would not be required to pay off maturing loans and bonds.
In exchange, the 97 creditors represented by the seven-bank committee would restrict Dubai World from selling assets and segregating parts of its business to shield them from being confiscated, sources involved in the talks say. The standstill would buy time for Dubai World to negotiate a full debt restructuring, which would probably wrap up all of the debt into a bank loan spread out over a long period, possibly 10 years or so.
Despite that knowledge, we are still left with little more than probables and possibles. The people mediating the restructuring cannot be blamed for not telling us the full story, of course. Nor can reporters and investors be blamed for trying to find out what is going on behind the curtain. @Email:firstname.lastname@example.org