By Andrew England in Abu Dhabi and Simeon Kerr in Dubai, FT.com
December 1, 2009

(FT) - Whether knowingly or not, Dubai, a city state built with grandiose long-term plans financed by piles of short-term debt, has cut off a crucial lifeline that may have helped it navigate the storm that threatens to engulf it.

Emirati traders follow the market's movements in Dubai as the stock market plunged Monday.

One of the immediate consequences of the emirate's decision to seek a standstill agreement with Dubai World's creditors, after weeks of officials talking up the prospects of their meeting their obligations, is to curtail its ability to raise financing through capital markets.

Analysts say that in the current climate it will be all but impossible for Dubai to issue bonds and tap fresh loans because of the damage to its credibility. That means its ability to refinance debts - estimated to be at least $80bn - will be severely hampered.

Many investors are looking to Abu Dhabi as the lender of last resort, whether bilaterally or under the cover of the United Arab Emirates' federal government. But there has been no word from the UAE capital, while the only federal statement has been that the central bank, which is backed by Abu Dhabi, will support local banks and set up a liquidity facility for those in need. Read full article

Filed under: Dubai •Economic crisis