The Government of Dubai has said it will not bail-out its subsidiary Dubai World, sparking fears that creditors to the hugely-indebted conglomerate could lose billions.

The announcement from Abdulrahman al-Saleh, the director general of Dubai’s Department of Finance, effectively confirms that country does not have enough money to repay Dubai World’s debts of $60 billion.

Last week, the state-owned conglomerate asked for six-month standstill on repaying its debts, and called in accountancy firm Deloitte to advise on its restructure.

This includes a $3.5 billion Islamic bond that was due to be repaid by Nakheel in two weeks.

Some 70 institutions are believed to have loaned Dubai World money in recent years, including Royal Bank of Scotland (RBS) arranging $2.3 billion of loans for Dubai, although it is not known how much the bank could lose if the company defaults.

There had been hopes the Dubai government would issue a statement on Dubai World earlier this morning.

Markets across Europe and Asia had rallied this morning after this weekend’s intervention by the Central Bank of the United Arab Emirates, which has injected emergency liquidity to prevent a run on banks.

However, hours of silence from the Dubai government knocked investors’ confidence.

The announcement from Abdulrahman al-Saleh then followed. He said lenders to the conglomerate bear some responsibility for the crisis because they lent based on the viability of the firm’s projects, not because of government guarantees.

Al-Saleh said while Dubai owns Dubai World, it has been known since the conglomerate was established that it was independent and that it “is not guaranteed by the government.”

It has also emerged today that Nakheel has requested that all three of its sukuks (Islamic bonds) traded on the Dubai stock exchange be suspended “until it is in a position to fully inform the market”. This includes the $4 billion sukuk due to mature on December 14, which triggered the current crisis.