The Dubai developer building the world's tallest skyscraper said Wednesday it is calling off a planned merger with property companies controlled by the city-state's ruler, raising fresh questions about Dubai's debt problems and its willingness to repay.
Emaar Properties' surprise decision not to combine with three firms owned by Dubai Holding came after the emirate's main stock exchange plunged for a third straight day, as investors dumped holdings in the troubled Arab boomtown amid a scramble for details about the depth of its credit woes.
"There are a lot of different policies going on at once, and it's not exactly clear what the next steps are going to be," said Rachel Ziemba, a senior analyst at Roubini Global Economics who monitors Gulf state investments.
"Maybe someone has an idea of what's going to happen next, but there hasn't been a lot clarity."
That lack of information has scared off investors and prompted ratings agencies to sharply downgrade the creditworthiness of many companies once seen as having strong state support.
The Dubai Financial Market's benchmark index dropped 6.3 percent at Wednesday's close, building on steep declines since Monday. The exchange has seen its yearlong gains erased following the announcement that Dubai World, the emirate's biggest conglomerate, needed to restructure $26 billion in debt.
Dubai officials have said they will not guarantee debts racked up by the state-run company, which served for years as one of the city-state's chief engines for growth.
The drop was echoed in Abu Dhabi, the oil-rich emirate that is home to the United Arab Emirates' federal government. That bourse tumbled 2.8 percent.
As in previous sessions, shares of bellwether Emaar were among the hardest hit on the DFM, plummeting nearly 10 percent.
"There's a huge level of uncertainty, and investors are not interested in gaining more exposure to Dubai," Julian Bruce, director of institutional equity sales at EFG Hermes, said of the market's slide. "That's why everything is for sale."
Analysts at Barclays Capital said in a research report that Dubai Holding could be "next in line" with credit problems.
Confusion over Dubai's next steps has prompted rating agencies to rethink their once far rosier assumptions of Dubai government-linked debt. A cascade of credit downgrades has followed.
Moody's Investor Service said Wednesday it was putting all state-backed borrowers owned by the UAE federal government and the sheikdom of Abu Dhabi on review for possible downgrade.
A day earlier, Moody's cut the ratings of six government-linked companies, leaving all in junk status. Emaar was among the companies downgraded.
Word of the canceled merger came in a statement sent by the Dubai ruler's media office saying Emaar's board of directors decided the long-anticipated tie-up was not economically feasible right now. It did not elaborate.
A later statement clarified that the decision was made and announced by both Emaar and Dubai Holding, which is controlled by Dubai's hereditary ruler, Sheik Mohammed bin Rashid Al Maktoum.
Representatives for the two companies were unable to provide additional details when reached by The Associated Press.
Dubai's government owns nearly a third of Emaar, which along with state-owned Dubai World's Nakheel was one of the most prominent developers shaping the emirate's evolution from a sleepy seaside village into a pulsing, high-rise metropolis. Dubai is one of seven semiautonomous city-states making up the UAE.
Emaar opened the region's largest shopping mall last year and is putting the finishing touches on the Burj Dubai, the world's tallest tower expected to open early next month.
In June, Emaar said it planned to merge with Dubai Holding subsidiaries Dubai Properties, Sama Dubai and Tatweer, in a a consolidation aimed at better coping with a steep drop in Dubai's once white-hot property market. Some Emaar investors were unhappy with the plan because of concerns it would overload the company with too much new debt.
Earlier Wednesday, Nakheel, the Dubai World subsidiary that built the city-state's iconic palm-shaped islands, disclosed that it lost about $3.66 billion, in the first half of this year as property values tumbled.
The company also said it had amassed nearly $20 billion in liabilities through the end of June, and had assets valued at about twice that amount.
The debt build-up mirrored that of Dubai World _ whose sprawling holdings range from ports to real estate and luxury retail _ and of Dubai, itself.
The conglomerate and the emirate had relied on cheap cash to build up Dubai over the past decade. But the bills are coming due and the money is not there.
That crunch prompted Dubai's government, on the eve of the U.S. Thanksgiving holiday, to announce that Dubai World would seek a six-month "standstill," effectively a delay, on repaying some of its $60 billion in debts.
The company later said the restructuring would involve roughly $26 billion in debts, and indicated it may sell some assets to raise the cash. But it said its profitable ports and related free zone operations would be exempt from the restructuring. Also off the table was its private equity division Istithmar World and Infinity World Holding, the co-owner of Las Vegas' new $8.5 billion CityCenter hotel and casino complex.
Dubai World looked to isolate other assets from the restructuring, announcing late Tuesday that its shipbuilding and repair arm Drydocks World will not be included in a restructuring.
Yet even as it tries to fence off more valuable assets, Dubai is coming under mounting pressure from creditors. Dubai World's Istithmar lost ownership of the W Union Square New York hotel in a foreclosure auction Tuesday.
Associated Press Writer Barbara Surk contributed reporting.