Shares rallied yesterday as investors appeared to regain confidence following news that Borse Dubai, the government-owned stock exchange operator, had secured a US$2.5 billion (Dh9.18bn) one-year loan from international and local banks.
"It was the easing of worry and fear," said Mohammed Yasin, the managing director at Shuaa Securities. "In my opinion, sentiment was the main catalyst - somehow the deal swept away some worries over the effects of the economic crisis on Dubai and its debt." Larger trading volumes were another sign that sentiment was improving, he said. It emerged that the state-owned Investment Corporation of Dubai (ICD), which owns 60 per cent of Borse Dubai, had provided up to $2.3bn of the overall $3.4bn refinancing needed by the stock operator.
Initially, Borse Dubai had sought $2.5bn from an international syndicate and planned to raise only the remaining $900 million from shareholders. But in the end, only $1.2bn of the $2.5bn syndication was raised from international banks, with the remaining $1.3bn provided by state-owned Dubai banks after ICD deposited cash with them, sources told Reuters. Dubai's main Dubai Financial Market General Index rose 5.38 per cent to 1,601 points, which was its largest one-day gain for three months. Shares of Dubai Financial Market stock were up 14.52 per cent, giving the company an accumulated gain of about 35 per cent in the past three days.
"Until today, Dubai has not defaulted on any of its debt and the Federal Government will not allow any major defaults," Mr Yasin said. "Our markets were oversold because of those fears." In another sign of optimism, credit default swaps for insuring Dubai's debt fell 50 basis points to 950 basis points. Mr Yasin said UAE stocks were starting to decouple from the international markets. Earlier this week, stock markets had not followed US markets down. "Investors are starting to look more at internal factors and not just outside," he said.
Shares of developers and construction-related companies rose following comments by Sultan bin Sulayem, the chairman of Dubai World, who told Bloomberg that the Government was working on a plan to support lending. "If we want the banks to lend again to real estate, then obviously governments will have to put a plan," Mr bin Sulayem said. "I know, I am aware, that the Central Bank and the Federal Government are taking steps to lend money."
The dearth of funds has led to a situation where banks have been hoarding cash and clamping down on lending, while developers have been forced to halt or postpone projects as property prices fall and they run out of money to build. "That is great news for the market - there may be a bailout plan or liquidity coming into the sector," Mr Yasin said. Shares in Emaar Properties, the largest developer in the UAE, rose 11.17 per cent to Dh2, while Arabtec Holding rose 12.57 per cent. Dubai Islamic Bank climbed 9.8 per cent to Dh1.85. Abu Dhabi's index was also up 2.12 per cent and ended the day at 2,250 points. Abu Dhabi National Energy Company rose 10 per cent and National Bank of Abu Dhabi ended 6.5 per cent higher.