Dubai’s government stunned the debt markets on Wednesday by asking for a 6-month standstill on the debts of its flagship holding company Dubai World.
The shock move came just hours after the Government of Dubai raised $5bn via a bond issue, the proceeds of which traders had rather naively assumed would be used to pay back a loan issued by Nakheel, Dubai World’s property arm.
The $3.5bn convertible bond is due to redeem next month.
Rather inconveniently for the markets, the news emerged the day before both the Middle East and the United States clocked off for long-weekend holidays, leaving many in the market confused and bewildered about how to interpret the announcement.
The immediate reaction though was on Dubai’s own sovereign CDS on account of Dubai World being a government related entity:
Meanwhile, the Nakheel bond itself reacted as follows (note the vertical dip on the right hand side):
And here are the opening quotes for the bond on Thursday:
Everything now depends on just how amicable negotitations between Dubai World and its lenders will be.
Update:
Dealers have just told us the Nakheel bond has traded at 70.
Upadte II:
Now trading 65-70.
Related links:
“For the general purposes of the Dubai Financial Support Fund…” - FT Alphaville
“The Sun Never Sets on Dubai World.” Really? – FT Alphaville
Dubai World asks for debt ‘standstill’ – FT
A forced seller at the LSE? – FT Alphaville