INVESTOR CONFIDENCE in Dubai took a fresh knock yesterday as officials dithered over a rescue for debt-laden state conglomerate Dubai World and ratings agency Moody’s slapped a downgrade on government-related debt.

“You can usually take the view that no news is good news, but in Dubai’s case it’s quite the opposite – investors need to hear some developments on Dubai World’s restructuring,” said Julian Bruce, EFG-Hermes director of institutional equity sales.

Leading lenders met Dubai World on Monday to negotiate over a $3.5 billion (€2.4 billion) Islamic bond or sukuk, the world’s largest, issued by Dubai World subsidiary Nakheel, builder of Dubai’s palm-shaped islands.

That bond is scheduled to be repayed on December 14th, but in the longer term creditors also face a request for a six-month standstill on $26 billion of debt.

A banker close to the discussions said Dubai World had not yet shown the creditors a proposal.

“You’ve got to think these guys are either very clever or don’t know what they are doing,” the banker said.

Shares in some lender banks including Royal Bank of Scotland, HSBC and Standard Chartered took a knock, with traders attributing the drop in part to a Bloomberg report that said Nakheel had suffered a $3.65 billion half-year loss.

While creditors and ratings agencies sought more clarity on plans to restructure the company that spearheaded Dubai’s rapid growth, a senior government official suggested yesterday the overhaul would take more than half a year to complete.

Moody’s said investors should heed the Dubai government’s insistence that it would not bail out corporate issuers of debt.

“Moody’s no longer believes it appropriate to assume timely support,” the ratings agency said. – (Reuters)