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The terse statement Wednesday came in the midst of negotiations between creditors and the state-controlled Dubai World, which has led many of the city-state’s most ambitious real estate projects but has struggled under the burden of $59 billion in liabilities.
For the many banks that financed the debt-fueled ascent of Dubai — analysts estimate the government’s debt to be about $80 billion — the move to halt Dubai World’s debt payments represents a harsh truth that many in the region have been trying to make clear to bankers: that a genuine restructuring of Dubai’s debt would need to happen, with pain being shared equally between Dubai and its lenders.
Bankers have also said it was clear that Abu Dhabi, the oil-rich governing emirate of the United Arab Emirates, would not unconditionally bail out its more profligate neighbor. Abu Dhabi sits upon 9 percent of the world’s oil and manages the largest sovereign wealth fund.
The Dubai announcement came as a shock to the markets as well as to Dubai’s bankers. The bonds of Dubai World’s property development unit, Nakheel, dropped sharply, and the cost that an investor must pay to insure against a default by the government of Dubai soared.
To some extent, the announcement of the standstill was mitigated by other news Wednesday that Dubai had raised $5 billion from Abu Dhabi banks. Still, that figure was considerably less than the $20 billion Dubai had been hoping to attract from investors in the United Arab Emirates and abroad.
‘‘What is interesting is the timing,’’ said Christopher M. Davidson, an expert on the region at Durham University in England. ‘‘This indicates that the money from Abu Dhabi is not to be spent on Nakheel and Dubai World.’’ The decision to ask for a delay comes just weeks before Nakheel, the developer of Dubai’s signature palmshaped islands, was due to make payment on its $3.52 billion of Islamic bonds. Dubai World, which also owns Dubai’s massive port operations and holds stakes in overseas properties like the Barneys retail chain and the MGM Mirage hotel in Las Vegas, has billions of dollars of payments due in the months that follow.
A spokesman for Dubai World could not be reached for comment.
This year, Dubai raised $10 billion in a bond issue that was taken up by the Abu Dhabi central bank.
It is clear now that these sums have not been sufficient, especially as many of the assets in Dubai World’s diffuse portfolio have plunged in value over the past year.
Executives at Dubai World have said they would not engage in any distressed asset sales and that they were sure of a recovery in real estate prices, which have dropped by as much as 40 percent.
In its statement, the Dubai government said it had appointed a special support fund to manage the restructuring effort and that Deloitte had been hired as an adviser in the process.
‘‘As a first step,’’ the statement said, ‘‘Dubai World intends to ask all providers of financing to Dubai World and Nakheel to ‘standstill’ and extend maturities until at least 30 May 2010.’’ Dubai’s $80 billion in debt is equivalent to 100 percent of the emirate’s 2008 gross domestic product and nine times its 2008 revenue, according to Moody’s Investors Service.
Dubai World is run by Sultan Ahmed bin Sulayem, a close adviser to Dubai’s ruler, Sheikh Mohammed bin Rashid al- Maktoum, who has insisted publicly that Dubai and Abu Dhabi would work together to reach a solution on the debt question.
‘‘Abu Dhabi is pumping 2.5 million barrels a day of oil,’’ said Emad Mostaque, a Middle East equity fund manager for Pictet Asset Management in London. ‘‘Of course, you want it and Dubai to be working together.’’
