State-owned Dubai World did not ask creditors for a standstill on $22 billion (13.6 billion pounds) of debt at a meeting on Monday, adding to uncertainty for investors who have been in the dark for weeks and hurting local bank shares.
Dubai's flagship conglomerate met around 90 of its creditors and was expected to formalise a request for a debt standstill.
But a Dubai World spokesman said the meeting was an overview of potential ways to move forward and that creditors needed to form a panel for talks to proceed.
The company said in a statement later that it would work with financial creditors to seek standstill in an orderly way.
Dubai sent shockwaves through global markets on November 25 when it said it would request a standstill on billions of dollars of debts linked to Dubai World and its property units Limitless and Nakheel, developer of three palm-shaped islands.
A $10 billion lifeline from wealthier neighbour Abu Dhabi last week -- the third this year -- helped Dubai stave off default on a $4.1 billion Islamic bond from Nakheel and provided enough funds to service debts until April.
Banks had lent to Dubai government-linked firms on the implicit understanding that they were backed by Abu Dhabi or by the federal government of the oil-exporting United Arab Emirates, of which both Dubai and Abu Dhabi are a part.
While the support eventually came, the delay and the lack of communication shook global markets and may have caused lasting damage to the reputation of the Gulf business hub.
Bankers predicted that Monday's meeting would mark only the start of what could be lengthy negotiations.
I believe that these discussions are going to take some time, so to make a judgement or to expect an outcome so soon, is difficult, said Mohammed Yasin, CEO of Shuaa Securities.
The meeting began late in UAE's trading day but Dubai's Emirates NBD and Abu Dhabi Commercial Bank, lenders with significant exposure to Dubai World's debts, closed down 4.8 percent.
Construction stocks were also hit. Dubai's index ended down 0.2 percent and Abu Dhabi down 0.8 percent.
But investors said they expected the short-term reaction to be muted.
We're not going to see any panic in the market because Dubai today has the ammunition to go through this restructuring phase and reach an agreement with its creditors, said Rami Sidani, head of asset management at Shroeders Middle East, referring to the $10 billion extended by Abu Dhabi.
UAE Economy Minister Sultan bin Saeed al-Mansouri said Dubai, which faces more debt maturities next year, may get further aid from the federal government or Abu Dhabi and played down the impact on the UAE economy as whole.
This issue has to be studied in a proper manner, evaluated and based on that, an answer will be provided on the federal level or the local level because the way we see this is one economy not separated from each other, he told reporters on the sidelines of a conference.
He said the UAE would not change economic forecasts for 2010 due to the crisis as it did not have a huge reflection on the economy of the world's No. 3 oil exporter.
The UAE's oil revenues amount to some $50 billion a year at an estimated average oil price of $60 a barrel. But Abu Dhabi is home to the vast majority of that oil while Dubai has little.
A steering committee of Dubai World's largest lenders last met Dubai World on December 7. The committee consists of London-listed Standard Chartered, HSBC, Lloyds and Royal Bank of Scotland, and local lenders Emirates NBD and Abu Dhabi Commercial Bank.
Dubai may still repay lenders in full, an Abu Dhabi-based newspaper reported on Sunday, citing unnamed sources.
The National daily said two top Dubai officials, on a confidence-building mission to Britain and the United States in recent days, told financial leaders in London that repaying all bank loans in full was discussed as a medium-term possibility.
They made clear there were a number of options the government of Dubai saw as feasible and desirable for Dubai World and repayment in full was one of them, the newspaper quoted a person who attended the talks as saying.
But a full repayment seems the most unlikely of available options and bankers expect Dubai World to propose the extension of maturities for at least a year or more while paying interest.
Providing clarity is clearly the number one priority, said Raj Madha, banking analyst at EFG-Hermes.
In the boom years, Dubai lured wealthy visitors and courted the media with celebrity-endorsed projects and developments such as The World, an archipelago in the shape of a world map.
But whereas neighbours funded growth with proceeds from soaring oil prices, Dubai borrowed to invest through a network of state-linked conglomerates that offered limited transparency.
Dubai World's troubles have raised question marks about transparency in the region as a whole and fears among investors that other government-linked firms could also face problems.
Speculation has continued to mount over which assets Dubai Inc., the network of government-owned companies, is willing to sell to help pay off its debt obligations.
Luxury hotelier Jumeirah Group, is not for sale, said its owner Dubai Holding, which belongs to Dubai's ruler.
(Additional reporting by Amena Bakr, Jason Benham and Amran Abocar, Writing by Lin Noueihed, Editing by Sitaraman Shankar)