Dubai’s debt problems shook shares across Asia and Europe on Thursday despite the emirate’s efforts to minimise the impact of a debt restructuring plan at two of its biggest companies that raised fears of default. The 30-share BSE Sensex dropped 344 points to 16,854.93, its lowest close in a week as Dubai woes, devaluation of currency by Vietnam and the fall in Chinese stocks sent bulls scurrying for cover.

In Europe, bank shares, which had recovered over the last six months on hopes the worst of a global economic crisis was over, fell to lows not seen since May on fears of exposure to Dubai. In India, ICICI Bank dipped by 3.74 per cent and state-run banking giant SBI by 3.01 per cent.

On Wednesday, Dubai said two of its flagship firms planned to delay repayment on billions of dollars of debt as a first step toward restructuring Dubai World, the conglomerate that spearheaded the emirate’s breakneck growth. State-run Dubai World has $59 billion of liabilities, its subsidiary Nakheel said in August, a large proportion of Dubai’s total debt of $80 billion.

According to Geojit BNP Paribas Financial Services research head Alex Mathews, in the afternoon session, Indian markets witnessed huge selloff tracking the Asian market cues and closed for the day in red near the day’s low. “The major negative news was that Dubai government owned investment company Dubai World asked for a six-month delay on repaying its debts. Dubai world has total debts of $59 billioln. This raised concern of the financial health of the once financially strong Gulf country,” he said.

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