The shockwaves reverberated across the globe with the British pound and UK banks taking a big hit in afternoon trading.
Insurance premiums on Dubai-related debt spiralled on Thursday in response to the announcement that the emirate’s holding company, behind much of the spectacular property boom in the territory in recent years, was having trouble meeting debt payments.
Insurance on a five-year $10 million loan to Dubai is now running at over $500,000 per annum, Reuters reports.
While Swedish banks are not overly exposed to Dubai and Middle Eastern markets the emirate’s financial tentacles extend to the Stockholm exchange.
Dubai’s holding firm Borse Dubai owns for example a fifth of Nasdaq OMX, the firm which operates the Stockholm exchange.
“This is nothing that affects either Nasdaq OMX or the Stockholm exchange,” said Carl Norell, a spokesperson for the exchange, to news agency TT.
Asian markets also felt the financial chill from Dubai overnight with the Nikkei 225 down 3.2 percent, the China Shanghai Composite down 2.2 percent and the Hong Kong Hang Seng dropping 4.3 percent.
With the US exchanges closed for the Thanksgiving Day holiday it was difficult to gauge Wall Street’s reaction to the news.
Dubai World has asked its creditors for respite until May 30th 2010 in order to restructure its balance sheet.
An eventual bankruptcy would have extensive consequences, the UK Financial Times warned on Thursday. The total debts accumulated by Dubai are thought to exceed $80 billion.
The head of Sweden’s Riksbanken, Stefan Ingves, said on Thursday that it is too early to judge the situation.
“Swedish banks are not that big in that part of the world, so it will hardly be a great concern for Swedish banks,” he said.