Dubai – Reality or Illusion? Is Sheikh Mohammed going to rescue Dubai?

Moody’s Investors Service downgraded six Dubai entities. Emaar Properties PJSC, the United Arab Emirates’ biggest developer, plunged to the lowest since July after it was cut by Moody’s. Emirates NBD, the U.A.E.’s biggest bank by assets, tumbled to 3.42 dirhams. JPMorgan cut the stock from “overweight” and assigned a 12-month price estimate of 3 dirhams. The DFM General Index has lost 27 percent since the emirate on Nov. 25 said Dubai World is seeking a “standstill” agreement on its debt.

Bonds of Dubai’s state-controlled companies tumbled to record lows yesterday signaling growing concern that borrowers will fall behind on debt payments. State-owned Dubai World is seeking to restructure $26 billion of debt. Nakheel PJSC, the company’s property unit, posted a first-half loss of 13.4 billion dirhams ($3.65 billion).

Dubai Holding LLC is most at risk of being “next in line” in restructuring its debt, Barclays Plc said. Istithmar, Dubai World’s investment arm, lost control of the W New York Union Square hotel yesterday in a foreclosure auction after investing in the property near the top of the real estate market. Dubai Group LLC, an investment company owned by the emirate’s ruling Sheikh Mohammed Bin Rashid Al Maktoum, is seeking to sell a $91 million stake in EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank, according to two people familiar with the sale.

Emaar lost 9.9 percent to 2.56 dirhams, the lowest level since July 23. Emaar and the five other companies were cut after Moody’s said recent comments by Dubai government officials indicated the businesses didn’t have state backing. Moody’s reduced Emaar two notches to B1 from Ba2.

Can the Ruler save Dubai or will Dubai just sink?