Anxiety over Dubai’s economic health has shaken world markets after Dubai World, the fulcrum of the emirate’s economy, announced that it would delay repayment of some of its debt.

The lack of information about Dubai’s flagship holding company, which is owned by the government, triggered indiscriminate selling of stocks linked to the region. The information lag has worsened because of Id holidays which are being observed in West Asia.

Dubai, which borrowed $80 billion to fuel a four-year construction boom, was badly hit by the global recession, with home prices halving since the 2008 peak. The Dubai World conglomerate is the emirate’s largest corporate entity, with its businesses covering real estate, port and leisure sectors. The company has asked for a “standstill” agreement to delay repayment by six months on most of its $59 billion of debt.

Markets in Asia fell sharply in the backdrop of the disclosure. In Japan, the Nikkei 225 had lost 3.2 per cent, its biggest one day fall in nearly eight months. In Seoul, the Kospi dropped by 4.7 per cent, marking a four-month decline. Hong Kong’s Hang Seng fell by 4.8 per cent.

The cascading effect of Dubai’s debt problems were felt worldwide, because the emirate is the region’s key financial centre, and is well integrated with global markets. Analysts say that any default in debt repayment by Dubai can set a dangerous precedent, and the contagion could spread, threatening the fragile recovery of the global economy from recession.

Oil prices have dropped sharply, raising concerns about economic confidence in the world economy. In the United States, crude fell by 5% to $74.23 a barrel and London Brent Crude dropped $1.47 to $75.42.

However, some analysts are of the view that the emirate of Abu Dhabi, which is rich in oil, and continues to remain financially strong, is expected to bail out Dubai out of its current financial difficulties.

Fuelled by its oil revenues, Abu Dhabi, unlike Dubai continues to witness as real estate boom, absorbing South Asian, and especially Indian labour in significant numbers.

About 4.5 million Indians live and work in the Gulf region and remit more than $10 billion annually.

Representatives of major Indian construction and engineering companies have maintained that Dubai’s financial woes are unlikely to affect them much as their exposure to the emirate’s real estate sector has been limited.

India’s only full-service back in the United Arab Emirates (UAE), Bank of Baroda has exposure of 7-8 percent of its loan book in the country.

The lender’s chairman, M.D. Mallya, told Reuters on Friday that the bank’s total exposure in the UAE stood at around Rs. 100 billion out of a total loan book size of Rs. 1.5 trillion. “Our exposure includes both corporate and retail accounts and not only the real estate portfolio,” Mr. Mallya was quoted as saying.

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