Shares hit by Dubai debt problems

European shares have been hit by concerns over Dubai's financial health, after a government-owned company asked for an extension on repaying its debts.

BBC News reports.

UK, French and German markets all fell by about 3% after Dubai World asked creditors to postpone upcoming repayments until May next year.
 

Banks were hit particularly hard on concerns over Dubai's ability to pay back its debts.

The emirate has been badly affected by the global recession.

"Certainly the Dubai debt debacle and the uncertainty that it has created has had a severe knock on effect," said David Buik at BGC Partners.

The UK's FTSE 100 index fell 2.9%, with shares in Royal Bank of Scotland falling 7.8% and those in Barclays down 6.4%.

France's CAC 40 index lost 3.1% while Germany's Dax slipped 2.8%.



 

Heavy price

After six years of rapid growth, the reputation of Dubai's economy is now being questioned.

"Dubai could not undermine itself any further as a place not to do business in at the moment," said Manus Cranny at MF Global.

"It is the much longer term implications on funding, confidence and capital raising that will take a decade or more to re-establish," he added.

Analysts say the Dubai government has paid the price for a flamboyant economic model centred on foreign capital and giant construction projects.


Full story: BBC News