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Monday, 30 November 2009

Sisterly CMBS: Istithmar and Adelphi

Fresh off the RNS:

£894,530,000 commercial mortgaged backed securities by Indus (Eclipse 2007-1) PLC-

Adelphi Whole Loan

We refer to the Servicing Agreement dated 12 April 2007. Terms defined and references construed in the Master Definitions Schedule have the same meaning and construction in this letter unless provided otherwise.

We have been advised by the relevant Borrower that as at 19 October 2009 the requirements of Clause 14.7 (Loan to Value) of each of Adelphi Senior Loan (£214,622,248 (senior) facility agreement dated 6 March 2007) and Adelphi Junior Loan (£38,325,401 (junior) facility agreement dated 6 March 2007) had not been met. Accordingly a Loan Event of Default and an Appraisal Reduction Event had occurred and is outstanding in respect of Adelphi Senior Loan and Adelphi Junior Loan.

Please find attached a copy of the preservation of rights letter issued to the Borrower.

We note that it is purely a breach of loan to value covenant under the Adelphi Senior Loan and Adelphi Junior Loan and we are not aware of any cashflow issues or any default in interest cover ratio.

In our view, given the general adverse market conditions and the continuing performance of the underlying Portfolio, the default:

does not adversely affect the ability of Borrower to satisfy its current payment obligations in respect of the relevant Loan; and

is not materially prejudicial to the interests of the Issuer.

We believe that a Special Servicing Event has not occurred and appointing a Special Servicer for the Loan would be premature. It will unduly stress the cashflow from the Adelphi Portfolio due to the additional costs associated with Special Servicing which will not be commensurate with the benefits to any relevant party from Special Servicing.

Accordingly we do not propose to place the Loan under Special Servicing at the moment. We will closely monitor the Portfolio in accordance with our obligations and keep you apprised of any developments that may adversely affect it.”

So that’s an LTV breach on the loan but without the need to put the thing into special servicing - basically CMBS jargon for the state of default.

Why is this of interest? Mike Phillips at commercial property specialist EGi puts it well:

A Barclays loan made to Istithmar and secured by the iconic Adelphi building on the Strand, WC2 has breached loan to value covenants, but no default will be called, EGi can reveal.

The £253m loan, secured against the office building found in the art-deco former Adelphi hotel building, saw its 80% loan to value covenant breached earlier this year due to the decline in values seen across the property market.

Istithmar, part of the Dubai World group that last week asked for a standstill on debt repayments, bought the building for £325m in November 2006. The debt used to make the purchase was rolled up with other loans made by Barclays, and investors bought bonds secured against the income.

Last week, speculation abounded that Istithmar might be forced to sell property assets such as the Adelphi in order to raise capital to meet Dubai World’s wider corporate debt requirements. However, the fact that the Adelphi building is held with a CMBS loan portfolio would make any sale of this asset more complicated

Being held in a CMBS loan portfolio under special servicing would undoubtedly make any prospective sale even more complicated.

Lucky then, that Istithmar seems to have escaped it - so far.

Citigroup, JPMorgan Lead ‘Manageable’ U.S. Exposure to U.A.E.

U.S. bank exposure to the United Arab Emirates is “a very manageable” $9.9 billion compared with European banks that have lent almost nine times as much, according to CreditSights Inc.

Citigroup Inc. is owed about $5.9 billion and JPMorgan Chase & Co. approximately $2.5 billion as of the fourth quarter of 2008, CreditSights analysts led by David Hendler in New York wrote in a Nov. 29 report.

Dubai World, a state-owned holding company struggling with $59 billion of debt and other liabilities, said Nov. 25 it would seek a standstill agreement with creditors and an extension of loan maturities until at least May 30, raising prospects of losses for banks. Dubai is one of seven emirates of the U.A.E.

“We believe the U.S. banks’ exposure to the U.A.E. is a very manageable $9.9 billion,” the CreditSights analysts said.

The analysts using data from the Bank for International Settlements, Emirates Banks Association and company filings said no breakdown is available for Dubai itself.END

Dubai silence not golden as debt worries loom

Dubai’s silence over how it plans to dig its way out of its staggering debt holds dire consequences for the emirate revered as a shining example of how to transform a desert fishing village into a global financial metropolis.

Shrugging off global concern over the sheikdom’s $80-billion plus debt and a dwindling revenue stream to pay it as an exaggeration is a surefire way to ward off much needed confidence the city needs in this new crisis, regional analysts said on Monday.

“I think the damage could have been contained earlier, with more open communication, with more constant communication,” Farouk Soussa, head of Middle East government ratings at Standard & Poor’s in Dubai, told Maktoob Business.

Natural Gas Glut Overwhelms Speculators, Defies Rally

When Qatar’s biggest natural gas shipment to the U.S. arrived this month, it signaled to Barclays Capital Inc. and PFC Energy that this year’s worst performing commodity investment won’t recover in 2010.

Murwab, a Qatari liquefied natural gas tanker, carried the first shipment to the U.S. from the Persian Gulf nation since June 2008. Its cargo, enough to heat about 9 million homes for a day, added to the largest gas inventories for this time of year since at least 1994, Energy Department data show.

Rising supplies threaten to hurt the record-large $4.2 billion bet in the U.S. Natural Gas Fund LP, while traders hold 51 percent more options contracts to buy gas than they do to sell. The International Energy Agency warned of a glut that Qatar’s energy minister said may last until 2012. Wall Street’s consensus forecast for a 51 percent rise in U.S. gas futures to an average $6.09 per million British thermal units next year is too high, according to industry consultant Schork Group Inc.

Could the Dubai debacle trigger a Dirham devaluation?

Highly unlikely, is the sensible answer.

The UAE dirham, which has been pegged to the US dollar at a rate of since 3.6725 since 1997, has the full faith and wallet of the state of Abu Dhabi behind it.

With Abu Dhabi estimated to have billions of dollars of foreign currency reserves, and around 9 per cent of the world’s proven oil reserves, the emirate looks the last sovereign entity likely to be forced into an embarrassing devaluation.

But the market appears to disagree. United Arab Emirates one year currency forwards, which can be used by traders to take bets on the future direction of currencies, hit the highest level since February on Monday.

FT Alphaville » Blog Archive » What next for Nakheel?

FT Alphaville » Blog Archive » What next for Nakheel?

Dubai World Unit Pays Monday Bond Coupon Off

Dubai World unit Jebel Ali Free Zone Authority, or Jafza, has made a coupon payment due Monday on a 7.5 billion U.A.E dirham ($2.04 billion) Islamic bond, or sukuk, a bondholder said.

The sukuk's payment was estimated to be between 125 million dirham and 135 million dirham, according to analyst calculations.

Dubai World is struggling with about 60 billion dirham of liabilities and asked Wednesday for a standstill on all its debts until at least May 2010 while it restructures.

The sukuk was issued in November 2007 through a Cayman Islands-registered company called JAFZ Sukuk Limited and pays 1.3 percentage points over the six-month Emirates Interbank Offered Rate, according to Zawya.com.

Barclays Capital, Deutsche Bank, Dubai Islamic Bank, and Lehman Brothers acted as joint lead managers and joint bookrunners, according to the bond prospectus.

The sukuk is due November 2012.END

Dubai World’s Debt Not Guaranteed by Government

Dubai’s government said it hasn’t guaranteed the debt of Dubai World, the state-controlled holding company struggling with $59 billion in liabilities, and that creditors must help it restructure.

“The company received financing based on its project schedule, not a government guarantee,” Abdulrahman Al Saleh, director general of the emirate’s Department of Finance, said in an interview with Dubai TV, when asked whether the government was backing the debt. “Lenders should bear part of the responsibility.”

Dubai’s government said Nov. 25 that Dubai World would seek a standstill agreement with creditors and an extension of loan maturities until at least May 30, 2010. The announcement led to the biggest declines in Asian shares in three months last week and Europe’s worst rout since April. Investors were concerned the proposal risks triggering the biggest sovereign default since Argentina in 2001.

Why I Am An Optimist


I admit that of late my writings have had a rather dark tone. There are certainly a number of severe long-term problems that we must deal with, and they're going to serve up a lot of economic pain.

But the Thanksgiving weekend with the kids has me in a reflective mood, and one that has only served to underscore my long-term optimism.

This week we look at why 2007 will not be the good old days we will yearn for in 20 years, after we briefly visit Dubai and the latest unemployment numbers.

Crisis Over: UAE Bailout Gives Traders Green Light To Keep Taking Risks

As a potential financial crisis, traders have already forgotten about Dubai.

The key factor is that the UAE is backstopping banks, which, as we know from experience here, is the signal to go back to business as usual.

Bloomberg: The euro and the Australian dollar rose against the greenback and the yen after the United Arab Emirates’ central bank said it “stands behind” the country’s banks, easing concerns about a possible default by Dubai World.

The U.S. dollar pared earlier gains against Japan’s currency after the Mainichi newspaper reported Finance Minister Hirohisa Fujii as saying the government won’t intervene to weaken the yen. The euro gained for the first time in three days after the Abu Dhabi-based central bank of the U.A.E. said lenders will be able to borrow using a special facility tied to their current accounts.

“The market is willing to assume that there will be no actual default in Dubai,” said Sean Callow, a strategist at Westpac Banking Corp. in Sydney. “We’re likely to get back to what everybody is most comfortable with, which is selling U.S. dollars.”

After swooning on Friday, the futures are already in the green for tomorrow.


Dubai Debt Story More Like Bear Stearns Less Like Lehman Brothers

The task of today's Daily Reckoning is to show that the Dubai debt story is more like Bear Stearns and less like Lehman Brothers. A second task is to show that the news from Dubai could be the catalyst for fund managers and traders to take profits on all of their 2009 winners. This could lead to steep falls in emerging market stocks, including Australia.

But first things first. Dubai World is not nearly large, leveraged, or systemically important as either Bear Stearns or Lehman Brothers when both those firms failed. For those reasons, it's unlikely that the failure of Dubai World (and we're not saying it will fail) would, by itself, cause a global deleveraging.

Dubai World has $59 billion in debt. That makes up the majority of the $80 billion in debt of Dubai itself. According to Reuters, international banks are exposed to $12 billion in debt. Incidentally, the Commonwealth Bank of Australia said it has exposure to Dubai but doesn't expect to make a loss.

Asian Markets Rebound on Improving Sentiment Tied to Dubai

Asian stock markets were higher Monday after last week's sharp selloff tied to Dubai World's debt crisis.

Financial stocks were rebounding in Australia, Korea and Japan on hopes the extent of the impact of the Dubai crisis would be limited.

Japan's Nikkei 225 was up 2.0%, Australia's S&P/ASX 200 was up 2.3%, New Zealand's NZX-50 gained 1.2%, South Korea's Kospi Composite rose 2.0%. Dow Jones Industrial Average futures were 32 points higher in screen trade.

"After concerns earlier in the week over the risks of a Dubai debt default becoming a global systemic event, there appeared to be a little more comfort on Friday that this was a localized issue and international exposure was reasonable limited," said Philip Borkin, economist at ANZ bank in Wellington.

Dubai’s Growth Model Called Into Question

“Why not? If you can have it in New York, why can’t we have it here,” said United Arab Emirates Prime Minister Sheikh Mohammed bin Rashid Al Maktoum in an interview with CBS in October 2007, when the global economy was booming.

When asked why he was in such a hurry since most would try and do this in a lifetime, not five years, the sheikh said, “I want my people to live better now. Not after 20 years.”

His answers explain how Dubai achieved rapid growth in a short period time and why the largest city in the UAE has faced a crisis equivalent to state bankruptcy.

Risk, opulence and reality in Dubai

Dubai is a clever blend of audacity and architecture, a shiny monument to the egos and ambition that turned a tiny emirate into a Middle East financial giant. Russian oligarchs stroll along man-made islands shaped like palm trees, and sheiks race down a ski slope built inside a shopping mall.

Lacking the oil reserves of the emirate's neighbors, Dubai's ruling family created a parallel economic reality fueled by real estate, international investment and the art of the possible. The emirate was fashioned into a sleek cityscape of startling images: Islam balanced against the seduction of Western capitalism, and tribal traditions brushing the fleeting trends of globalization.

Cranes like countless arms moved across a skyline that grew more crowded by the day, if not the hour. The world's tallest building went up, highways looped through the desert, the airport never closed. Dubai expanded into a commerce crossroads for Asia, Europe and America, a place of cigar salons, horse races, a seven-star hotel and suitcases full of money.

IS DUBAI ANOTHER BLACK SWAN?

Vern Hayden, president of Hayden Financial Group LLC, and Mark Dow, a portfolio manager at Pharo Management LLC, talk with Bloomberg’s Jon Erlichman about Dubai’s credit crisis and the possible impact on investor strategy.

Dubai Stocks Poised for Bruising Monday

Dubai stocks are seen racking up significant losses Monday, putting a 28% rally so far this year at risk, amid concerns about the city-state's deteriorating debt profile.

Late last week Dubai said it plans to restructure Dubai World, one of its flagship companies that is struggling with liabilities of about $60 billion, and will seek a debt standstill, sparking fears of a default. The news sent global stock prices lower as investor appetite for riskier assets rapidly diminished.

"Given that there has been no significant statement yet from any government official to explain the situation, the U.A.E. stock markets are likely to trade limit down Monday as investors react, just like all other world markets, to Dubai's debt problems," said Haissam Arabi, chief executive of Gulfmena Alternative Investments.

Dubai Debt Woes Deliver Commodities Wake-Up Call

Dubai's attempt to reschedule its debt delivered a wake-up call to commodities investors who have been flocking to gold, copper and oil.

The specter of default by Dubai World, the investment arm of the government, has highlighted the fragility of the economic recovery and prompted investors to exit commodities and seek a safe haven in other assets.

Qatar Airways hits hard at Boeing delays

National Carrier Qatar Airways has threatened to cancel orders made to US aircraft manufacturer Boeing if the company failed to meet its delivery commitments.

One of the world’s top airlines, Qatar Airways is a large Boeing client and among the orders for planes worth billions of dollars to be delivered over the next few years, are the Dreamliner aircraft.

However, due to a strike last year at Boeing’s manufacturing facilities in the US, the delivery of the Dreamliner aircraft had been rescheduled.

UAE moves to counter Dubai fallout but markets wary

The United Arab Emirates offered banks emergency support on Sunday, the first steps to ease fears that a looming debt default by two of Dubai's flagship firms could derail the global economic recovery.

But the move to inject liquidity into Dubai's banks by the central bank of the Gulf Arab state, together with promises by neighboring city-state Abu Dhabi to provide selective support to Dubai companies was seen as by analysts as the bare minimum.

Dubai markets, which are set to open on Monday morning after a four-day holiday, are expected to fall by the maximum daily limit of 10 percent as banks, property and construction firms face investor ire over moves to restructure the Dubai economy.

US vulture fund circles over DIC's alumina producer

Dubai International Capital faces a tough battle to keep control of Almatis, the world's biggest alumina producer, as Oaktree Capital, the US vulture fund, prepares a proposal to acquire the company by restructuring its $1bn debts.

The move is a blow for DIC, the international investment vehicle controlled by Dubai's ruler, Sheikh Mohammed Bin Rashid al-Maktoum . It also comes as Dubai faces questions about its strategy as a result of the emirate's debt crisis .

Oaktree, one of the world's biggest distressed- debt investors, is this week expected to present a proposal to Almatis and its creditors that would write off much of its debt. Control of the German alumina producer would pass to the US vulture fund.

Eyes on banks and markets as holiday ends

When the UAE’s financial services reopen on Monday after a four-day holiday, eyes will be on the nation’s banks and capital markets amid concerns that they will feel the brunt of the fallout from Dubai World’s woes.

A Muslim holiday has seen banks and stock markets in the region closed since Wednesday, the day Dubai World shocked markets with its statement that it was seeking a standstill agreement with creditors.

Many investors fear a bloody day on their home markets, with predictions that stocks on the Abu Dhabi and Dubai exchanges may end limit down. Both exchanges limit trade on liquidly-traded stocks when they fall 10 per cent.

Global Insight: Dubai’s neighbours are wary

Where are the oil-rich Gulf states? That has been a recurring reaction in international markets since Dubai delivered its shock call for a standstill on the debts of its flagship Dubai World.

With hundreds of billions of dollars accumulated by Gulf governments during the oil-boom years, international officials say that surely someone can extricate Dubai from its financial troubles.

Throughout the dark days of the financial crisis, many analysts had played down worries about the Gulf, including heavily indebted Dubai, assuming that there was simply too much money sloshing around for any big-name company to default on its debt. Gulf sovereign wealth funds, after all, were being courted by western officials to help rescue troubled international banks.

Sunday, 29 November 2009

Central Bank to back country's lenders - The National Newspaper

Central Bank to back country's lenders - The National Newspaper

The Dubai Crisis

The tragedy of the black hole in Dubai’s finances is that it has dealt a blow not only to its own reputation but to that of the United Arab Emirates -- and beyond that to the Arab Gulf as a whole. One might even go so far as to say that it has dealt a painful blow to the entire Arab world.

Until the crisis broke -- with the announcement last Wednesday that Dubai was seeking a six-month moratorium on the debt of Dubai World, its government-owned holding company -- the Arab Gulf was widely recognized as the real success story of the Arab world.

It had become a pole of modernity, of high-finance, of high-tech enterprise, of education and culture, of spectacular universities and museums. It had attracted international attention and admiration.

Dubai World refused distress-asset sale: report

Dubai World has refused to offload assets at fire-sale prices to repay obligations, forcing it to seek a debt standstill, a newspaper report on Sunday quoted an unnamed source at the government-controlled firm as saying.

Stocks from Tokyo to New York have been haunted by concern that banks were exposed to state companies in Dubai, though world leaders expressed confidence in the global economic recovery on Friday despite the fears.

"The group absolutely refused in the last few months to sell a number of good investment and property assets at low prices," al-Ittihad newspaper said, quoting a source at Dubai World, the holding company at the center of Dubai's debt crisis.

Is Dubai right to face its Day of Reckoning? (Re-post)

Next week financial markets will be looking for some pretty speedy answers from Dubai after the sudden decision to suspend payments on the debt of Dubai World.

If the intension is to ring-fence a particular part of state assets then creditors will need to know what they are facing. Just what does Dubai World have as assets? How much are they worth? What can be realized? And how much is available?

There are always two sides to a debt crisis. The lenders are partly culpable. Why did they lend so much to an entity that now can not pay up? What happened to their due diligence and credit assessment? Did they not see the soaring debt levels?

$60bn debt mountain

But going forward lenders will have to realize that having invested in Dubai World they are reliant on the company and its advisers for a solution to their $60 billion debt mountain. It will always be better to reach a solution than no solution for creditors. A disorderly liquidation really would be a nightmare with everybody a loser.

That said the Dubai Government is also going to have to face up to the inconvenient truth that markets do not selectively apply government guarantees. If a sovereign gives its word on one entity’s debt and then goes back on it, then all its sovereign guarantees are open to question.

Actually it is more basic than that: if an entity is a part of the government then the liability of the government is surely unlimited? Well, to argue the reverse would be difficult, unless it is explicitly stated in the reams of documentation.

This is just a fact of life in global markets, not an interpretation of reality. That means it is impossible to contain a credit crisis that involves a sovereign guarantee within the boundaries of one government entity.

The global market response to this news has surely demonstrated this fact. An announcement about the debts of a Dubai Government company brought share prices down as far away as Japan, and even impacted the value of the US dollar.

New credit crunch

In the UAE the impact is going to be similar to the credit crisis last autumn, unless the federal government intervenes very decisively. The cost of money will go up to reflect the greater risk of it not being repaid, and banks will presumably be even less willing to lend money to the private sector, or to the public sector entities with sovereign guarantees.

Actually this situation is by no means unique to the UAE. The $22 billion Algosaibi banking scandal in Saudi Arabia has had a similar impact on the availability of credit to small and medium sized enterprises across the Kingdom.

Yet arguably facing up to a day of reckoning is exactly how a financial crisis should be dealt with. There is a very good argument that the rest of the world is only putting off its ultimate crisis by borrowing even more heavily to bail out global financial markets, and that its final crisis will just be bigger.

Clearing up the debts

Could Dubai just be doing what everybody else ought to be doing? You can certainly argue that by clearing up its books now Dubai will be in a position to recover more strongly later.

But this will be painful and come at a high price for those who lose their jobs and investments in this fall-out. It might be the right commercial response to a difficult position. But then this position should never have been reached in the first place, and for that bankers must also share a part of the blame.

Dubai plans appeal to bondholders

Dubai’s government is preparing a campaign to persuade the holders of a bond due for repayment next month to agree to a delay even if that sparks claims that the emirate has defaulted on the debts of a government-backed company, bankers said on Sunday.

Pushing aside concerns about potential legal action, the department of finance is preparing to communicate with the public and with the bondholders of an upcoming $4bn sukuk, or Islamic bond, issued by Nakheel, a major real estate developer, via the new chief restructuring officer of Dubai World, Nakheel’s parent.

It needs to gain the agreement of the holders of three-quarters of the bond’s value. Dubai will also start a press campaign headed by senior members of the supreme fiscal committee and department of finance, according to people familar with the situation.

Monday crash for Gulf stock markets inevitable (Re-post)

Will the Gulf stock markets decide to close and take an extra day for their Eid holiday on Monday? Certainly in the UAE with a closure for National Day on Wednesday it must be tempting to declare a longer holiday and face the music later.

But the global financial market reaction to Dubai’s decision to suspend debt repayments from Dubai World was considerable at the end of last week when local markets were closed for Eid, and we can only anticipate a major sell-off to follow locally.

Overreaction

The authorities have done their best to calm local nerves and to caution against an ‘overreaction’ as the Gulf News described it today. But unfortunately stock markets are prone to overreactions. It is in the nature of the beast when receiving unexpectedly bad news.

The 21 per cent improvement in the MSCI Arabian Markets Index this year now looks vulnerable to a complete reversal. This will contribute to an also inevitable fall in the MSCI Emerging Markets Index, up a heady 71 per cent over the same period.

At the end of November the Dubai Financial Market was the top performing regional market, up 28 per cent, with Abu Dhabi up 22 per cent. Seasoned observers thought local stocks already looking a little overbought, though their fears focused mainly on over-borrowed local families rather than the public sector.

The stage is therefore set for a nasty crash, most likely over several days as circuit-breakers are triggered in major stocks.

Exit rush

For those who have clung on to realize maximum stock market profits rather than taking gains early this rush for the exit door is going to be particularly painful. Perhaps the UAE authorities will intervene. But there is not much precedent for this, and they might see it as throwing good money after bad.

But if it is any consolation to market players then they will not be alone. The contagion from the Gulf stock markets to the rest of the emerging markets will be both direct and considerable. Gulf players will be sellers to pay margin calls, and this is also going to be a considerable wake-up call for emerging market stock markets which have gotten far too high.

Mark Mobius thinks this is the start of a 20 per cent correction across the board for the emerging markets, and after their recent massive gains that could be an underestimate of the downside now.

Will this emerging market stock market correction also finally kick Wall Street off its perch and end its record rally from the lows of March? Will oil and even gold prices fall? That is also looks inevitable. This is a stack of dominos waiting to fall.

How Dubai's dream sank in a sea of debt

As he flew from Dubai to London last Sunday, Sheikh Mohammed bin Rashid al-Maktoum had plenty on his mind.In the four years since he had become ruler of Dubai, Maktoum had grown used to courting world leaders to visit and invest in his desert emirate. They admired the economic growth he had fostered as Dubai, fast running out of oil, turned itself into a tourism and finance hub.

Maktoum knew that on this trip he would have to strike a more humble tone. After an audience with the Queen at Buckingham Palace, he met Gordon Brown and Lord Mandelson. The damaging effect of the global economic downturn on Dubai’s growth was on the agenda. The sheikh brought reassurances that angry British contractors, caught up in the emirate’s construction collapse, would eventually get paid.

Maktoum also knew that a bigger test to international relations was brewing. But there were few clues until he had jetted out of London.

Dubai debt, damage, and the double dip downturn (Re-post)

Is this the death of Dubai? Almost certainly not. But this is probably the end of the current chapter of the success story of Dubai penned by Sheikh Mohamed. There is much too much water that has pass through Dubai creek for this situation to be remedied overnight.



Although the situation at hand is serious, and grand in the scale of sovereign debt, it hits us at a time where markets are sleeping. The American’s are thanksgiving, the whole of the Arab world is off for Eid, so any ripple or hiccup in a low trading period becomes exacerbated. But why has this sent shockwaves across international markets when hundreds of billions of dollars have been written off during the first phase of the downturn? Well, whether this is $60bn or more, it hits hard, especially when this is considered sovereign debt.

But while there has been talk of refinancing of debt in recent months, this actually came as much of a surprise to the market. This is why headlines over the world over the last few days have centred on Dubai. And why did markets freefall on first hearing of Dubai’s struggle? Well, the investment that Western banks had in Dubai World was significant. HSBC and Standard Chartered are said to be exposed by $25bn. That, and the fact that the dollar is at risk. Could the dollar collapse?

Indeed, Islamic Finance, itself, is being scrutinised and if Nakheel doesn’t repay on its $4bn sukuk, the options for Dubai World start to diminish. Whether or not Dubai World defaults, Dubai is now in the limelight. The critics had previously tried to trash Dubai’s reputation in many other ways. But this is the nail in the coffin. To the layman on the street, Dubai had taken out lots of debt, built some crazy buildings using slave labour, and now can’t repay the debt. It’s a little more complicated than that, but Dubai will find it difficult raising the type of money it once found easy to turn away. That’s a new era for Dubai.

What is important to note, is that strictly Dubai World hasn’t yet defaulted – it has just asked for a delay in the repayment of their $60bn. And while that might not happen, Abu Dhabi, the elder and oil rich emirate will step in to prevent a wholescale collapse that would take much of the Arab reputation back into the sinking sand. Abu Dhabi will want to balance saving Dubai versus maintaining itself as a viable investment hub – the balance between seeming overly eager and scrapping at fire sale assets – which it had always wanted, is how the cynics will paint it.

This is the second phase of the global recession. This is the second dip in the double dip scenario - markets have rebounded far too quickly. The first phase was defined by the bad debt in Western markets – and headline was Lehman. This second phase will headlined as Dubai’s collapse, even though it wasn’t the heart of the problem. A problem, yes, a scapegoat, yes. But the real story is that the problem of global debt is very much alive and Dubai has been part of that problem.END

Was the Dubai Debt Crisis Inevitable?

Global markets are reeling from news that Dubai World, the investment arm of Dubai's government, is seeking to suspend payments for its massive debt. Dubai, once seen as the Middle East playground for the super-wealthy, appears unable to support its breakneck construction and infrastructure projects. Bloomberg News reports it could owe as much as $80 to $90 billion. Will financial markets on Wall Street as well as Europe and Asia recover or will Dubai's descent drag them down? How worried should we be about Dubai?

Isolated Incident, The New York Times's Paul Krugman argues. "[Y]ou can see this as basically just another commercial real estate bust. Either you view Dubai World as nothing special, despite sovereign ownership, as Willem Buiter does; or you think of the emirate as a whole as, in effect, a highly leveraged CRE investor facing the same problems as many others in the same situation. Finally, you can see Dubai as sui generis. And really, there has been nothing else quite like it."

Disaster Averted? Time's Justin Fox urges calm. "As of this morning, things are already calming down a bit. Some Asian markets were down sharply overnight, and U.S. stock markets started the day 2% down. But European markets, which took the brunt of the hit yesterday, are up on the day," he writes. "A return to the indiscriminate panic of last fall would be really bad. A move toward a more skeptical attitude toward risky assets, in which investors feel compelled to do more work to sort out the dodgy from the relatively safe, would be a really healthy development. So far I think we're getting the second reaction."

Dubai needs to stop the contagion, fast

The crisis in Dubai has been a sharp reminder that there are still more aftershocks of the credit crunch to ripple around the globe. When Dubai World announced it was seeking a six-month debt standstill, the fear was this was a Lehman Brothers of the Middle East ushering in a dangerous second phase of the financial crisis. Just as economies were beginning to recover from the biggest shock since the Great Depression of the 1930s, it looked as if we were teetering again on the edge.

Dubai is a monument to the excesses that gave us this global financial crisis. The boom in the former British protectorate was spectacular and so has been the bust. Property prices went as high as its famous skyscrapers before plunging back down to earth. The 1.2m expats who went there in search of a new life, including 120,000 Britons, have known that the good times had ended, although most have chosen to stick it out.

If banks had an excuse for their reckless behaviour during the credit boom, it was that many of the assets they created that turned toxic were highly complex. In the case of Dubai there is no such excuse. Even casual observers could see this was a boom built on sand. Yet the banks kept lending, and some will suffer big losses.

As Dubai crashes from wonder to blunder, who will go down with it?

Dubai's story of hotels and hubris in the desert sands is well rehearsed, but where will the narrative end? A relatively happy conclusion would be for the damage to be localised and containable, for Abu Dhabi or the International Monetary Fund to step in as backer, and for world markets to regain a measure of calm. An unhappy denouement hardly bears thinking about.

The only surprise about the downfall is that it came as a surprise. Neighbouring Gulf states could see it coming and have been keen for some time to differentiate themselves from their wayward brother emirate. On a recent visit to Qatar, everyone bent my ear about the huge contrast between them and Dubai. To be fair, if Dubai is the Middle East's answer to Las Vegas, Qatar is the equivalent of Halifax, Nova Scotia.

With little oil to its name, Dubai set about transforming itself from a small pearl-fishing port to the "eighth wonder of the world", with the seven-star Burj al-Arab hotel, the shopping malls, the expat villas and vaunting ambitions to become a world-class financial centre. But the improvident Gulf state traded oil-dependency for property-dependency – or, more accurately, debt-dependency.

Natural Gas: Powering the Dubai Overshoot

You’ve seen the before-and-after pictures, like a Vegas slug of glass rising in the desert. And, you’ve read the stories about indebted foreign workers leaving their Range Rovers behind, as they flee. Perhaps you’ve seen video of the indoor ski arcade? Or, caught the gaze of the photographer’s eye on the poor, underpaid migrant workers constructing the Burj Dubai. Welcome to today’s obligatory Dubai blog post. Brought to you courtesy of some very hot, sovereign default action as the UAE’s most glittery city announced overnight a request for a stay on debt payments from Dubai World. How could a country so rich in energy resources have gotten itself into such a mess?

It’s generally assumed that just about every Mid-East oil producer is a big, net exporter of oil and while that’s also true for the United Arab Emirates what’s worth noting, or retelling today, is the means by which the UAE, principally because of Dubai (an Emirate within the UAE), started to become a net importer of natural gas.

As in the rest of the world, though primarily in Asia, the Mid-East is now finally in the process of transitioning away from using industrial diesel for its power generation–though in many cases starting from very high levels. You can understand why that practice lingered in places like Saudi Arabia for so long, when the cost of oil extraction was effectively near zero.

Putting Dubai in Perspective

OF THE HANDFUL OF RESONANT QUOTATIONS that will be enshrined for the ages by chroniclers of the financial crisis, one is probably cited most frequently by the more thoughtful participants in those barstool sessions on "What just happened?" that remain common, at least here in New York.

It is this observation, delivered in a March 2007 speech by Federal Reserve governor Kevin Warsh: "Liquidity is confidence."

Prosaic on the surface, it is a succinct reminder that liquidity is not some quantifiable raw commodity refined by central banks or a naturally occurring element of the economic atmosphere, but a result of the way policy and psychology, expectations and reality, are interacting at a given moment.

Dubai World Unit Faces Default Test Monday With Bond Payment

Debt-laden Dubai World's unit Jebel Ali Free Zone Authority, or Jafza, faces on Monday a coupon payment on a 7.5 billion U.A.E dirham ($2.04 billion) Islamic bond in the first key test of whether it will default.

The Islamic bond, or sukuk, was issued in November 2007 through a Cayman Islands-registered company called JAFZ Sukuk Limited and pays 130 basis points over the six-month Emirates Interbank Offered Rate, according to Zawya.com.

The coming coupon payment is estimated to be between AED125 million and AED135 million, according to analyst calculations.

Spokespersons for Dubai World declined to comment on the payment Saturday, a holiday in the U.A.E. The Jafza sukuk is the first payment due for a Dubai government-related entity since the restructuring announcement Wednesday, which sent global markets and banks into a panic before the weekend.

Dubai World's request for a standstill will include a key $3.52 billion bond owned by Nakheel, the developer behind Dubai's palm-shaped islands, that matures on Dec. 14.

Payments on the sukuk are made semi-annually, on May 27 and Nov. 27. Bankers said that payment is due on Monday, since Nov. 27 fell on a weekend in the U.A.E.

Barclays Capital, Deutsche Bank, Dubai Islamic Bank, and Lehman Brothers acted as joint lead managers and joint bookrunners, according to the bond prospectus. The sukuk is due November 2012.

Jafza operates a free trade zone and industrial parks in the port town of Jebel Ali, outside of the city of Dubai, and is a unit of Economic Zones World, or EZW. EZW is operated by Dubai World.

S&P and Moody's downgraded Jafza and other Dubai government related-entities Wednesday, after Dubai World said it would restructure and ask for a standstill on all debts until at least May 2010. S&P placed Jafza on creditwatch with negative implications. Moody's downgraded its issuer and debt ratings to Ba1 from Baa1.END

Delay to publication of clippings this morning!

With events in Dubai you may appreciate the volume of stories that need to be read and assessed before publication.

If you subscribe to the 0500GMT email edition, it may lack substance, please check back over the next two hours.

My apologies and I wish you a peaceful Sunday, wherever you are in the World

Saturday, 28 November 2009

UAE Banks risk credibility loss on Dubai exposures | U.S. | Reuters

UAE Banks risk credibility loss on Dubai exposures

Dubai's Credit Scare - WSJ.com

Dubai's Credit Scare - WSJ.com

Emerginvest Featured Analysis: Dubai’s latest mega-project – a massive default?

Emerginvest Featured Analysis: Dubai’s latest mega-project – a massive default?

Abu Dhabi to aid Dubai "case by case" -official

Abu Dhabi, capital of the United Arab Emirates and one of the world's top oil exporters, will "pick and choose" how to assist its debt-laden neighbour Dubai, a senior Abu Dhabi official said on Saturday.

"We will look at Dubai's commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts," the official told Reuters by telephone.

The government official declined to be identified because he is not authorised to speak to the media.

"Some of Dubai's entities are commercial, semi-government ones. Abu Dhabi will pick and choose when and where to assist," he said.END

Assessing fallout of Dubai’s credit disaster (Comment from Saudi Arabia)

Concerns about Dubai’s potentially crippling default on enormous debts to global creditors have rattled investor confidence across the oil-exporting Gulf region, prompting corporate issuers in the region to postpone or cancel bond issuances (e.g. Gulf Investment Bank) in the wake of the news.

We estimate Dubai’s debt upward of $80 billion. At the heart of the issue is whether state-run Dubai World, which holds more than $50 billion in liabilities, will be able to pay back its creditors. The conglomerate that runs flagship Dubai companies such as DP World, asked banks this week for a “standstill” agreement as it negotiates to extend maturities of debt, including the $3.52 billion in Islamic bonds due next month from Nakheel, the famed palm tree island developer. The bond at the center of Dubai’s restructuring efforts, the December 2009 Islamic bond from Nakheel, has lost a third of its value since the announcement, the price having collapsed to 72 points from 111 beforehand.

Dubai’s announcement, which happened on Wednesday, sent shockwaves through European equity markets on fears that many banks could face massive writedowns on Dubai debt. Currency and bond markets across the globe were also exposed to developments that have become the source of the biggest destruction of confidence in Dubai’s history. To make matters more interesting the ports operator, DP World announced that it will be excluded from the debt standstill and restructuring of Dubai World and its subsidiaries. The company, the world’s fourth-largest ports operator, is 77 percent owned by Dubai World. DP World is considered the best asset within Dubai World. We think this move is clearly to differentiate the good assets of Dubai from the bad ones, and DP World is a good asset.

India Studying Effect of Dubai’s Debt Delay Plan on Its Economy

India, the world’s top recipient of migrant remittances, is examining the effect Dubai’s attempt to delay debt repayments may have on Asia’s third-largest economy, central bank Governor Duvvuri Subbarao said.

About 4.5 million Indians live and work in the Gulf region and remit more than $10 billion annually, according to government data. The turmoil may affect remittances, said Thomas Issac, finance minister of the southern state of Kerala, which accounted for about a quarter India’s migrant labor in 2005.

Dubai World, the emirate’s investment company, roiled markets as it sought a “standstill” agreement to delay repayment on much of its $59 billion of debt. Dubai suffered the world’s steepest property slump in the global recession, with home prices dropping 50 percent from their 2008 peak, according to Deutsche Bank AG. Most Indian migrant workers are employed in the Gulf’s construction industry, according to the government.

Dubai default fears hit U.S. casino stocks

Shares of U.S. casino companies fell on Friday amid concerns that a possible debt default at Dubai state-owned conglomerate Dubai World DBWLD.UL could derail a budding economic recovery that has seen investments by casinos in Las Vegas and emerging markets.

Casino operator MGM Mirage (MGM.N), which is a partner with Dubai World in the $8.5 billion CityCenter project in Las Vegas, saw shares dip 9 percent in early trade on the New York Stock exchange. The stock bounced back somewhat and was down 3.3 percent at $10.65 by late morning.

"Dubai is a large holder in MGM shares," said Susquehanna Financial Group analyst Robert LaFleur. "If they're in a position where they're seeking liquidity, you have to wonder whether they'll look to those shares as a source of potential liquidity."

Reality catches up with the Gulf’s model global city - Opinion (Complete column)

It was almost a convincing show. The message to the City of London from Dubai was that the city-state had not only weathered the global economic crisis but was now destined to benefit as more financial groups escaped the high tax regimes and mounting regulatory restraints of more established centres.

That was two weeks ago. I was at a conference in London organised by the Dubai International Financial Centre, which bills itself as one of Dubai’s great achievements. Of course at the time no one in the room had an inkling of the storm that was about to be unleashed by the emirate – the demand for a delay in the debt payments of its flagship Dubai World, a move that sent jitters through global markets and sparked fears of a setback to the economic recovery.

Nor did participants know that the man who opened the conference – the well-respected Omar bin Sulaiman, head of the DIFC – would be sacked a few days later, without a hint of explanation. But then, this was only the most dramatic sign of a certain malady in the emirate – an alarming disconnect between the bubble of Dubai and the real world.

Today the city-state, which gave us Palm-shaped islands and indoor ski resorts, is a financial centre that cannot pay its debts. And it has the financial community – much of it, incidentally, with offices at the DIFC – up in arms, contending that it had been misled about the city’s debt management intentions.

Dubai has always marketed itself as a model of a global city, in a backward Arab region which has miserably failed to overcome its conflicts or meet the aspirations of its young population. The biography of its ambitious ruler – Sheikh Mohammed bin Rashid al-Maktoum – depicts a man with a mission to usher in no less than an Arab renaissance.

Yet Dubai has managed its finances with a combination of an autocratic state refusing to face reality and a secretive family company oblivious to the expectations and the workings of world markets.

If the global meltdown washed up on the Dubai shores this week, when other troubled cities are on their way to recovery, it is, at least in part, because it took the emirate so long to admit that it was in trouble.

Just over a year ago, when Lehman Brothers collapsed and world markets tumbled, the word in Dubai was that the emirate was too strong to be caught up in the turbulence.

In one of many surreal moments that followed the Lehman debacle, Nakheel, the debt-laden Dubai World developer at the centre of the storm, unveiled plans to build the tallest tower in Dubai. A competitor, of course, was already well on its way to completing the emirate’s tallest building. The new one, though, would soar above Burj Dubai, said Nakheel.

Officials insisted that Dubai knows how to take advantage of the misfortunes of others. We live in a violent and unstable environment, they would say, but that makes us a magnet for people and money fleeing other volatile spots. This is the Dubai model. This is the Dubai miracle.

In fact, it was probably officials’ fear of admitting to their boss the extent of the indebtedness of companies under their charge that delayed the reckoning.

Dubai eventually got over its denial – once it had counted its debts, which reached a massive $80bn, it was impossible not to. But it was not until February that it was helped out by Abu Dhabi, through a $10bn Dubai five-year bond issue to which the central bank of the federation, the United Arab Emirates, subscribed.

Why so long? Because the proud Sheikh Mohammed, it seems, was reluctant to be bailed out by his richer neighbour, possibly fearing it would put a damper on Dubai’s image and constrain its independence. Nor was he willing to part with some of Dubai’s crown jewels at distressed prices. Some people suspect that it is the same dogged resistance that has landed Dubai in this week’s mess.

Even after the February bond issue, officials in the emirate were coming up with all sorts of explanations for why it should not be defined as a “bail-out”.

Though the markets calmed down after the bail-out, it was not long before more confusion set in. In May one of the main people entrusted with steering the emirate out of the crisis – and one of the few who recognised the full scope of the challenge – was demoted.

Nasser al-Sheikh, the director-general of the finance department, seemed to have been a victim of a power struggle that intensified this year, as the head of the ruler’s court has sought to consolidate his own power, at the expense of aides who had been in favour during the boom years. It was not lost on some observers that while other competent people were being removed, Sultan bin Sulayem, the head of Dubai World, had been stripped of many of his powers, but is still at the helm of the company.

To be fair, Dubai’s plans to restructure its companies and put resources in the most viable assets might be sound. But given that details of any strategy are treated like a national secret, and that decision-making is wrapped up in palace intrigue, the city and now the rest of the world are left to operate on rumours and speculation rather than facts.

Perhaps none of this should surprise us. Dubai is a place where investors fell for trick advertising a few years ago that said the emirate would build a “bubble city”, a development of restaurants and museums suspended above ground by helium balloons and surrounded by a transparent enclosure.

This fantasy was never meant to get off the ground. But maybe it secretly did? And maybe that is where some of the decision-makers have been living.END

Heads in hands but expats vow to stay on

“Last night at dinner, people had their heads in their hands,” a British expatriate said as she fretted about the viability of her new fashion business. Local newspapers have in recent months played down the impact of the financial crisis. No one now can be in any doubt.

As the gravity of Dubai’s debt problems has crystallised over the past couple of days, white-collar workers have once again become troubled about their jobs and even the solvency of the banking system. Business owners are worried about outstanding payments, especially from units belonging to troubled Dubai World, the government-owned holding company.

Some of Dubai’s 1.2m expatriates were on Friday considering cleaning out their bank accounts on Monday, the first day of business after Eid al-Adha, the ”Feast of Sacrifice” holiday weekend. This was in spite of the federal government guaranteeing deposits at the start of the crisis last year.

More assets still to be monetised

As Dubai World prepares to restructure amid the firestorm of global anger over a potential default involving its real estate unit’s bond, bankers say plenty of assets could still be monetised.

The government-owned holding company had assets with a book value of $100bn at the end of 2008, with debts totalling about $40bn, including global ports operator DP World, which has been ringfenced from the debt rescheduling.

But the distressed debt surrounding the property company Nakheel, the investment firm Istithmar and the parent company is about $25bn. Of Dubai World’s $100bn in assets, it is estimated that the current market value could be about $75bn, depending on the value apportioned from the rise and fall in asset prices since 2006.

Dubai reveals the fragility of finance - Comment (Complete post)

It is only when the tide goes out that you find out whose artificial islands are built on sand. Dubai, the glitzy debt-fuelled emirate famous for its its extravagant sky-scrapers and man-made lagoons, announced this week that it is seeking a standstill on repayment of part of the debt of Dubai World, a state holding company.

The announcement was amateurish: it was unclear, and made on the eve of Eid, as the country closed down for four days. Regardless of its intentions, the emirate’s botched messaging created and then fanned fears about the solvency of the state of Dubai itself.

During the boom, the government of Dubai and its enterprises ran up at least $80bn of debt obligations. This may be a lot of money for a small country, but it pales in comparison to Lehman Brothers’ $613bn of liabilities. Dubai is a big property developer and a heavily indebted government, but a small financial player.

Still, this little pebble in the Gulf created big waves in markets. By week’s end, the FTSE 100 had fallen by 2.3 per cent and the Nikkei by 3.8 per cent. Spooked investors sought safety: yields on 10-year US Treasury bonds and UK gilts fell by 12 basis points and 9 basis points respectively.

Such nervousness is the result of continuing financial fragility. The economic crisis was caused by a build-up of leverage. As the crisis unfurled, policymakers rescued debtholders, rightly betting that the best escape route was to meet obligations to creditors and then rely on future economic growth to make debts manageable.

As a result, the financial system remains over-leveraged and undercapitalised. Growth may be returning and green shoots breaking through, but this week has confirmed that the world is not yet in the clear. The financial system remains fragile. Losses and clouds of uncertainty, such as those now hanging over the Gulf, can still trigger skittish sell-offs.

Markets will not soon return to the panic of September 2008: the financial sector now has state backstops. But, because of these guarantees, fearful investors have started to worry about how safe sovereign debt is. Investors are growing nervous about Greece and Ireland, in particular.

Dubai must sort this mess out. It will not now be able to restore confidence in its solvency without support from Abu Dhabi, its oil-rich investor, neighbour and the more conservative senior partner in the United Arab Emirates.

For its part, Abu Dhabi should give whatever help is needed to bring this episode of incompetence to a close. Abu Dhabi allowed it to be believed that it was backstopping Dubai, so it should make good its promises. This will require a public guarantee of Dubai’s debts – and soon. The reputation of the whole UAE depends upon it.END

Abu Dhabi expected to prop up smaller brother

Since the full scale of Dubai’s huge debt mountain hit home late last year, many investors who have sunk billions of dollars into the emirate’s extravagant projects have been turning their heads to the UAE’s capital for reassurance.

For years, as Dubai built one grandiose scheme after another there was the assumption – unwritten but widely believed – that Abu Dhabi would be on hand to pick up the pieces if the emirate’s bubble burst.

But with Dubai raising the possibility that one of its flagship entities may default, attention is now focusing on just how far Abu Dhabi is willing to go to bail out its smaller brother. Underlying the uncertainty, it is thought that Abu Dhabi officials were caught unaware by Dubai World’s dramatic statement, which came just hours after two Abu Dhabi-controlled banks had agreed to subscribe to a $5bn Dubai bond.

Dubai shockwave hits global markets

Tremors from the shock request by Dubai’s flagship government-owned holding company for a debt standstill spread through global equity markets on Friday, triggering a sell-off in Asia and heavy losses on Wall Street.

While European markets staged a modest but nervous rally after heavy sell-offs this week, investor sentiment remained jittery amid a scramble to assess the broader fallout of the problems of Dubai World.

“There is still nervousness,” said Chris Furness, strategist at 4Cast consultancy. “This has made people recognise the risk of a systemic global ripple.”

Reviving bond market hit

The Islamic bond market had just started to pick up – and then Dubai dropped the debt standstill bombshell.

The uncertainty over the possible default of the world’s largest Islamic bond, the $3.5bn (€2.3bn, £2.1bn) Nakheel deal, has thrown the market into turmoil.

The Nakheel bond, which was launched to much fanfare in 2006 at the height of the market boom and was due to be redeemed next month, was trading as low as 36 cents to the dollar on Friday, a third of its 109 redemption price, according to traders.

Friday, 27 November 2009

Dubai Debt May Be Higher Than $80 Billion, UBS Analysts Say

Dubai, the Persian Gulf emirate whose state-run companies are seeking to defer debt payments, may owe more than the $80 billion to $90 billion in liabilities assumed by investors, UBS AG analysts said in a note.

“Perhaps Dubai’s debt includes sizeable off-balance sheet liabilities that imply a total debt burden well above the $80 billion to $90 billion markets have estimated so far,” real estate analyst Saud Masud wrote in a note yesterday. “This could imply that the debt issued by Dubai in recent weeks is insufficient to meet upcoming redemptions.”

Dubai, which has said it will raise as much as $20 billion selling bonds to repay borrowings, said on Nov. 25 that state- run Dubai World, with $59 billion of liabilities, would ask creditors for a “standstill” agreement as it negotiates to extend debt maturities.

RBS Led Dubai World Lenders, HSBC May Have Most at Stake in UAE

Royal Bank of Scotland Group Plc underwrote more loans than any institution to Dubai World, the state company seeking to reschedule debt, while HSBC Holdings Plc has the most at risk in the United Arab Emirates, according to JPMorgan Chase & Co.

RBS, the largest U.K. government-controlled bank, arranged $2.3 billion, or 17 percent, of Dubai World loans since January 2007, JPMorgan said in a report today, citing Dealogic data. HSBC, Europe’s biggest bank, has the “largest absolute exposure” in the U.A.E. with $17 billion of loans in 2008, JPMorgan said, citing the Emirates Banks Association. Abu Dhabi Commercial Bank PJSC may be owed $1.9 billion by Dubai World, making it the largest creditor outside the emirate, said two people familiar with the companies.

“The market is very nervous about exposure to Dubai and RBS’s name has been associated with it as both a lender and a book runner,” said David Williams, a banks analyst at Fox-Pitt Kelton Ltd. in London. “People are concerned it’s going to produce a new wave of losses. Dubai is driving everything in the market at the moment.”

Dubai Crisis Means ‘Correction’ to Mobius, Risk Aversion to Das

Dubai’s attempt to reschedule debt may spur a “correction” in emerging markets, according to Mark Mobius, while the global slump in equities shows government spending alone won’t protect financial markets, Arnab Das of Roubini Global Economics said.

Mobius, who oversees about $25 billion of developing-nation assets as chairman of Templeton Asset Management Ltd., said a 20 percent drop for shares is “quite possible.” Stock volatility and risk aversion may jump as countries and companies default on loans, according to Das, the head of market research and strategy at RGE, the advisory firm founded by Nouriel Roubini.

Stocks retreated for a second day today, government bonds jumped and credit-default swaps climbed after Dubai World, the government investment company burdened by $59 billion of liabilities, sought to delay repayment of debt. The MSCI Emerging Markets Index has slumped 4.7 percent in the past two days after more than doubling from its 2009 low in March.

Iraq drilling firm to drill 180 wells in 2010

The state-run Iraq Drilling Company plans to drill 180 oil wells in 2010, and will be able to drill more than 250 new wells every year from 2011 onwards, the head of the company said.

Thirty of the new wells planned for 2010 will be in northern oilfields and 150 in the south, adding roughly 360,000 barrels of oil per day to Iraq's output capacity, Iraqi Drilling Company director Idrees al-Yassiri told Reuters in an interview.

The number of new wells next year will exceed the total number drilled in the 6-1/2 years since the U.S. invasion, he said on Thursday.

DUBAI: A STARK REMINDER OF HOW FRAGILE THE ECONOMY IS (Re-post)

Foreign markets are getting hammered overnight and futures in the U.S. are down 3% as news of a potential default at Dubai World reignites fears of the credit crisis. We have been absolutely hammering home the fact that the “solution” to the credit crisis was in fact, not a solution at all. There remain massive debt issues home and abroad and Dubai is only the latest example of such.



Although details are still emerging, the Dubai news will prove to be more company specific than Lehman Bros. was. I don’t believe the news is a reason for investors to panic as loan losses from a potential Dubai default would represent a meager portion of total banking assets. Contagion does not appear to be a large concern either, but perhaps more important is the reminder that Dubai sends – these problems of massive global debts are far from being settled despite all the v-shaped economic recovery chatter. Dubai’s standstill is a reminder that real estate markets around the world remain unhealthy and susceptible to sudden and dramatic downturns. Whether this is a minor tremor in commercial real estate (and potentially a sign of impending aftershocks in residential) has yet to be seen, but make no doubt – we are not out of the credit crisis woods.

This does little to change my cautious investment outlook. We have been almost entirely cash since selling into the rally over a month ago at S&P1,100 and remain cautious on markets heading into the year-end. This confirms my belief that the recovery is very fragile and the road ahead is likely to be difficult primarily due to the fact that our cancer (debt) is still very much alive. The governments in the U.S. and abroad have done little to attack this problem. Unfortunately, I believe this is unlikely to be the last of these reminders in the coming years. These debts are likely to plague the economy until we find leaders that are courageous enough to stand up to the banks and the fiscally irresponsible participants of the global economy.

Sean O'Grady: Is Dubai the 'New Lehmans'?

Is Dubai the “New Lehmans”? Not quite, at least on the broad numbers. Lehmans went down with debts of $500bn; the disarray in Dubai looks like losing everyone involved about $80bn, certainly not much when set against the $2,700bn ($2.7trillion) of banking losses accumulated over this crisis.

But the blow to confidence, at a time when the world is trying to crawl out of the worst downturn in three quarters of a century, is far more grievous. It has already shaken the stock markets; the fear now gripping them has the potential to induce more panic and set back recovery by months, if not years. That is prospect too horrible to contemplate.

Fortunately, we have had sufficient experience of financial crises to know precisely what needs to be done now; swift, bold international action. As with Iceland, the Ukraine, Hungary and many other states, Dubai can and should be saved. The damage is containable. Aid must come from Dubai’s partners in the United Arab Emirates, especially oil-rich Abu Dhabi; from the Gulf Cooperation Council, dominated by Saudi Arabia; and from the IMF. Abu Dhabi’s sovereign wealth fund alone is worth about $700bn, the biggest in the world. So the funds are there to organise some sort of rescue; the political will must be found.

Dubai Royal Reassures Investors On Dubai World Debt Woe

A senior member of Dubai's royal family stepped in late Thursday to ease investor concerns that one of the sheikdom's main business conglomerates may default on its debt.
"Our intervention in Dubai World was carefully planned and reflects its specific financial position," said Sheik Ahmed bin Saeed al Maktoum, who heads a key Dubai finance committee and is chairman of its airline Emirates.

"The government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react. We understand the concerns of the market and the creditors in particular. However we have had to intervene because of the need to take decisive action to address its particular debt burden," he said in an emailed statement.

"Like most global cities, Dubai has experienced its share of economic and social challenges in this global downturn. No market is immune from economic issues. This is a sensible business decision. We want to ensure resources are deployed in the full knowledge that they are used to enhance the businesses of the Dubai World Group, build on the restructuring that has already been taking place and ensure long term commercial success. Further information will be made available early next week," he said.

Shares in London plummeted Thursday a day after the sheikdom asked for a standstill on Dubai World's debt and dramatic restructuring of the company that has $60 billion in liabilities.END

Dubai’s Move on Debt Rattles Markets Worldwide

Global financial markets swooned Thursday, with London seeing its most precipitous drop in nearly nine months, a day after Dubai stunned investors with the news that it was asking banks to allow its main investment vehicle, Dubai World, to suspend its debt repayments for six months.

The announcement — the global high finance equivalent of a homeowner asking the bank to allow six months of skipped mortgage payments, presumably because the homeowner was out of cash — sowed fear of a contagion of instability that could roil markets that are only now recovering from the near cataclysm of the last year.

That possibility sent markets in London, Frankfurt and Paris spiraling downward, even as analysts struggled to explain which fears of contagion were legitimate and which were overwrought.

Dubai creditors have little option but to accept the hand they've been dealt

The restructuring of the $60bn (£36.4bn) of debt at the emirate's core holding company, which includes investment vehicle Istithmar and property developer Nakheel, will be the largest and toughest ever in the Gulf region. The few precedents are not encouraging for those who funded Dubai's grandiose vision.

Shocked creditors had expected timely repayment. Now, they are scrambling to form steering committees to liaise with Dubai World's new restructuring chief, Deloitte's Aidan Birkett. In practice, lenders can't really turn down the request for a six-month standstill and have little option but to wait for Dubai World to formulate a plan to address its sprawling debts.

Even if loans are secured and the underlying paperwork is comprehensive, the region's laws are unfriendly to creditors. It is almost impossible to seize collateral. The courts have consistently rejected claims by lenders to Kuwait's Global Investment and Investment Dar, financial firms which defaulted at the start of the year with combined liabilities of $5.5bn. In the Kingdom of Saudi Arabia, authorities even prioritised the claims of local lenders over the foreign banks which are estimated to be owed $16bn by two leading merchant families, the Saads and Algosaibis.

Abu Dhabi ascendant as debt spoils Dubai's "model"

Dubai's debt troubles have exposed the fallacy of its once much-vaunted "model" of raising shining cities in the desert with foreign residents, finance and labor.

They have also set in train a power shift toward Abu Dhabi.

On Wednesday, Dubai's government said it will ask creditors of two of its flagship firms, Dubai World and property group Nakheel, for a debt standstill as it restructures the Dubai World group.

Abu Dhabi Commercial Said Owed $1.9 Billion by Dubai

Abu Dhabi Commercial Bank PJSC may be owed $1.9 billion by Dubai World, making it the largest creditor outside the emirate to the state company seeking to reschedule debt, said two people familiar with the companies.

“We are in touch with Dubai World, and we have been in discussions more than once today and yesterday,” Ala’a Eraiqat, the chief executive officer of the third-largest lender in the United Arab Emirates, said in a telephone interview yesterday. He declined to comment on specifics. “We have a lot of assurances which is a good thing.”

HSBC Holdings Plc and Standard Chartered Plc led declines in bank shares in Asia today, and European stocks fell the most in seven months yesterday after Dubai World said it would seek a “standstill” agreement to delay repayment on much of its $59 billion of debt. Royal Bank of Scotland Group Plc, Lloyds Banking Group Plc and Credit Suisse Group AG slumped yesterday on concern Dubai will rattle lenders recovering from the global credit freeze that has triggered $1.72 trillion in losses and writedowns.

Major lenders scramble to assess losses

Banks were scrambling to quantify potential losses in Dubai after Dubai World, the state’s holding company, shocked creditors by asking to halt debt repayments.

Lenders such as Deutsche Bank, Credit Suisse, Citigroup and Barclays stressed privately on Thursday that their exposure to Dubai World was limited or insignificant. But industry analysts suggested that a deterioration of economic conditions in the emirate could trigger billions in losses.

European banks might have up to $40bn (€27bn, £24bn) of exposure to debt issued by Dubai state-owned entities, according to a Credit Suisse research note published by Credit Suisse. Dubai World accounts for about $60bn of the city-state’s $80bn liabilities, of which analysts estimate half is held by European banks.

Tough love needed to rebuild the ruins

Sultan bin Sulayem, the chairman of Dubai World, was yesterday on the hajj, the Muslim pilgrimage, where he would have been with millions fasting and praying for forgiveness on Mount Arafat.

IInternational investors are in a less forgiving mood after the announcement that Dubai would be seeking a standstill agreement on the government holding company's debt pile, most immediately $4bn (€2.7bn, £2.4bn) owed on a bond held by the Nakheel property subsidiary that comes due on December 14.

The restructuring of Du-bai World's debt has been in the works for some time, but investors had grown confident that the Islamic bond, or sukuk, guaranteed by state-owned Dubai World, would be treated separately and paid off to maintain confidence in the trade and finance-oriented economy.

Investors scent property firesale

Real estate investors are preparing for a firesale of prime properties from London to New York should Dubai decide to raise cash by selling liquid assets held by its investment companies.

Istithmar, the investment arm of Dubai World, was one of the busiest investors in “trophy” properties during the global property boom.

Its investments range from the Adelphi in The Strand, London, and Grand Buildings in historic Trafalgar Square to the Mandarin Oriental hotel in New York and a stake in the Victoria & Albert Waterfront complex in Cape Town.

Ruler’s role under close scrutiny

During the spectacular boom years that saw Dubai rise from the desert into a globally recognised trading hub and tourist destination, it was common to hear the emirate’s success attributed to one man – Sheikh Mohammed bin Rashid al-Maktoum.

But for the past 12 months his hands-on style of leadership has come under scrutiny like never before as the economic crisis has shaken the foundations on which Dubai was built.

Sheikh Mohammed, who is also the United Arab Emirates prime minister, took over the reins of power in Dubai less than four years ago after the death of his brother, but was long considered the driving force behind the glitzy emirate’s development.

A breathtaking blunder in Dubai

Of all the glitzy emirates on the western shore of the Gulf, Dubai is easily the brashest. With the grenade it has just lobbed into the capital markets by calling for a six-month creditor standstill for its flagship Dubai World holding company, it is effortlessly living down to that reputation.

Dubai’s action looks like either a serious misjudgment or, more likely, a breathtaking cock-up.

Either way, it leaves a trail of unanswered questions that has done real damage to its reputation – and to its vaulting ambition to emerge as the region’s financial centre and trading hub, the Singapore and Hong Kong of the Gulf. Today, Dubai is looking more like Argentina, but less predictable – its behaviour is genuinely baffling.

A world-beater carried away by its success

September was an important month for Dubai, a time when schools reopened and the city could start counting how many of its expatriates, stung by the global financial meltdown, had departed.

To everyone’s surprise the classrooms were not empty and the exit from Dubai was not as dramatic as expected.

For many residents the city state might be burdened by an $80bn (€53.5bn, £48bn) debt – accounting for 100 per cent of gross domestic product – but, with a diversified economy and a more liberal culture than many of its neighbours, it remained the right place to be. The economic slowdown had even enhanced the lifestyle; it meant less traffic and fewer construction projects.

Dubai gambles with its financial reputation

When you start building a third island shaped like a palm tree, intending it to be as big and crowded as Manhattan, you are crying out for a sober voice to bark: “Stop!”

But when that island is just one atoll in an artificial archipelago that would reconfigure the Persian Gulf coast into a thicket of trees, a map of the world, a whirling galaxy, a scythe and a sun that looks like a spider, what you need is some corporate restructuring. That, we learnt on Wednesday, was exactly what holding company Dubai World, the parent of Dubai’s chief coastal developer Nakheel, would get.

Last year, Robert Lee, one of Nakheel’s executives, showed me a map of the future Dubai Waterfront as his company put the finishing touches on the more modest Palm Jumeirah, the skyscraper- and villa-crammed island that started the trend.

Confidence knocked in tarnished region

The revelation that Dubai World is seeking to reach a standstill agreement with its creditors will dent fragile confidence in a region tarnished by a reputation for lack of transparency.

It will also heap more speculation on the relationship between Dubai and Abu Dhabi, the financial and political powerhouse of the United Arab Emirates, which was considered by some to be the guarantor of the federation’s poorer brethren.

Investors traditionally accepted implicit guarantees that Gulf governments would not allow a related entity to default on its debt.

Overnight markets: Turmoil

Stocks dropped around the world, reports Bloomberg, as Treasuries jumped and CDS climbed after Dubai’s sudden attempt to reschedule its debt. The dollar briefly fell below Y85, a 14-year low, boosting speculation Japan will intervene. US markets were closed Thursday for Thanksgiving, but futures on the S&P500 Index fell 2.2% on Friday. Asia bond risk meanwhile climbed, with the Markit iTraxx Japan index jumping as much as 23.5bp; it was up 18bp at 167bp mid-morning in Tokyo.

The Hajj and Eid al-Adha (Pictures taken from Haj 2008)

Eid Mubarak to all my subscribers and readers.


Today I woke to the sound of prayers taking place at Mosques within the area I live, in Dubai; wherever there is a Mosque this will be repeated until the sun has risen on the whole Western Hemisphere!

Now, at my early morning coffee shop, there are many individuals dressed in their smartest clothes and all with a smile on their face.

As a Christian I remain, after all these years in the Middle East, amazed at the level of Faith shown by so many people and from all stratas of society, long may it continue and not become diluted as appears to be the case with the Christian faith.

Long may it continue and hopefully the article images will help with the understanding of a religion, Islam, which at times is associated with the more unsavoury aspects of the human spirit.

Eid mubarak,
Rupert

Thursday, 26 November 2009

FT Alphaville » Blog Archive » CSI Dubai

FT Alphaville » Blog Archive » CSI Dubai

FT Alphaville » Blog Archive » The clairvoyant Nakheel short sellers

FT Alphaville » Blog Archive » The clairvoyant Nakheel short sellers

COLUMN-Dubai will pay for Abu Dhabi aid: Alexander Smith | Markets | Bonds News | Reuters

COLUMN-Dubai will pay for Abu Dhabi aid: Alexander Smith

FT Alphaville » Blog Archive » Sterling, Dubai: a liquidation love story

FT Alphaville » Blog Archive » Sterling, Dubai: a liquidation love story

European banks' Dubai exposure at $40 bln, United Kingdom Banks, Banking & Investment - Maktoob Business

European banks' Dubai exposure at $40 bln, United Kingdom Banks, Banking & Investment - Maktoob Business

Saudi-backed GIB pulls bond sale on Dubai debt move-sources

A dollar bond sale by Saudi-backed Gulf International Bank (GIB) was pulled after Dubai said it was seeking to delay repayment on billions of debt owed by its two flagship firms, sources said on Thursday.

The five-year bond for GIB, with an expected deal size of $500 million, was due to close on Wednesday but pricing failed to go ahead after Dubai's shock announcement. [ID:nGEE5AO2L1]

"Dubai is a massive event and we decided it would be prudent to postpone the GIB deal," said a syndicate member at one of the arranging banks.

ONGC to Meet Iran Oil Officials Seeking Opportunities

Oil & Natural Gas Corp., India’s biggest energy producer, plans to discuss “specific opportunities” with executives from National Iranian Oil Co. next week, said Chairman and Managing Director R.S. Sharma.

“In import-dependent countries like ours, we have to see where are the future sources of energy supplies,” Sharma said in an interview in his office in New Delhi. “Iran, they have the second-largest crude oil and gas reserves and they are not very well exploited.”

India is competing with countries including China and South Korea for natural resources overseas as output from domestic fields declines and requirements increase in the world’s second- fastest growing major economy. Domestic demand for oil may grow at as much as 4 percent in 2010, Sharma said. ONGC’s plans to develop projects in Iran have been delayed by the ongoing attempts to halt the Middle Eastern nation’s nuclear program.

Anger mingles with frustration in Dubai

A palpable sense of anger mingled with frustration in Dubai on Thursday as bankers and analysts tried to digest the implications of Wednesday’s shock announcement that Dubai World, a strategic developer, was seeking a standstill on its debt.

“The credibiilty of these guys has been found wanting. Whether there is a default or not the biggest issue is going to be credibility,” one senior analyst at an international bank, who had been talking to international and local clients overnight, said in Dubai.

“There is some suggestion that Dubai may have wanted to go it alone but you don’t go it alone when, rightly or wrongly, you have this bellweather bond payment falling due,” he said, referring to a $4bn payment due by Nakheel, a real estate developer, next month.

Dubai has a lot of explaining to do

It came in a short statement about the restructuring of Dubai World, one of the emirate’s biggest and best-known companies, with the big news buried towards the end.

But the decision to ask bondholders of the company and its most troubled subsidiary, Nakheel, to extend maturities from December to May 2010 was a bombshell. And the Middle East’s most glamorous and creative emirate will pay the price of its decision for a long time to come.

For months, all indications in Dubai were that the heavily indebted city-state, symbol of the rise of the region as an economic powerhouse as much as of the excesses of the pre-financial crunch days, would meet the obligations of the companies it owns, and that Nakheel’s $4bn debt due in December would be repaid.

FT Alphaville » Blog Archive » Moody’s statement on Dubai downgrades

FT Alphaville » Blog Archive » Moody’s statement on Dubai downgrades

The story continues to develop as the European trading week continues!

FT Alphaville » Blog Archive » Nakheel: Famous last words…

FT Alphaville » Blog Archive » Nakheel: Famous last words…

Proof that we live with Global Markets, Eid holidays throughout Muslim nations, yet European markets carry on, also ignoring Thanksgiving close in USA!

FT Alphaville » Blog Archive » A forced seller at the LSE?

FT Alphaville » Blog Archive » A forced seller at the LSE?

If sold will it be to Qatar, and possibly triggering a full takeover as 30% will be breached?

Interesting Eid holidays for some.

Also begs the question with regards Nasdaq stake held by Dubai!

FT Alphaville » Blog Archive » A friend in need…is a friend in de(fault)?

FT Alphaville » Blog Archive » A friend in need…is a friend in de(fault)?

Nakheel 2009 trading at $70, at time of posting, yesterday morning at $111!

UPDATE 1-DP World excluded from Dubai World debt restructuring | Reuters

UPDATE 1-DP World excluded from Dubai World debt restructuring
| Reuters


Clarity starting to come through.

Dubai Holding Says Ba’alawy Resigns as Chairman of Nasdaq Dubai - Bloomberg.com

Dubai Holding Says Ba’alawy Resigns as Chairman of Nasdaq Dubai - Bloomberg.com

MMC Says MOU With Dubai World for Malaysia Maritime Center Ended - Bloomberg.com

MMC Says MOU With Dubai World for Malaysia Maritime Center Ended - Bloomberg.com

Dubai World Seeks to Delay Debt Payments as Default Risk Soars - Bloomberg.com

Dubai World Seeks to Delay Debt Payments as Default Risk Soars - Bloomberg.com

Dubai Inc may face shakeup after debt standstill | Reuters

Dubai Inc may face shakeup after debt standstill

S&P downgrades Dubai govt entities on debt worry | Markets | Bonds News | Reuters

S&P downgrades Dubai govt entities on debt worry

REFILE-Chairman of NASDAQ Dubai quits, stays at Dubai Group | Industries | Financial Services & Real Estate | Reuters

REFILE-Chairman of NASDAQ Dubai quits, stays at Dubai Group

MGM Mirage Discounts Impact of Dubai Restructuring on City Center - WSJ.com

MGM Mirage Discounts Impact of Dubai Restructuring on City Center - WSJ.com

Abu Dhabi's 'AA/A-1+' sovereign ratings affirmed - Business Intelligence Middle East - bi-me.com - News, analysis, reports

Abu Dhabi's 'AA/A-1+' sovereign ratings affirmed - Business Intelligence Middle East - bi-me.com - News, analysis, reports

FT.com / Companies / Financial Services - Dubai shock after debt standstill call

FT.com / Companies / Financial Services - Dubai shock after debt standstill call

CDS report: All eyes on Dubai World

Gavan Nolan of Markit wrote this CDS report

European credit indices rallied today as the economic climate remained supportive of risk assets. The Markit iTraxx Europe index closed at 84bp, 1.5bp tighter than yesterday’s level. Both the Markit iTraxx HiVol and Crossover indices outperformed relative to the main and equities, tightening to 132.5bp (4bp, 3%) and 512bp (14bp, 2.7%) respectively.

The US dollar broke though the key $1.50 against the euro, and is now at its weakest level since August 2008. The depreciation of the currency appears to be fuelling investment flows in to risky assets throughout the world, though the benefits to a eurozone looking to export its way out of trouble are questionable. A slew of economic data in the US supported the rally. Personal consumption expenditures, a closely watched indicator at the Fed, rose by 0.7%, better than expected and reversing a drop in the previous month. The number of initial jobless claims fell by 35,000 to 466,000, again beating expectations. Further good news came in the form of 6.2% rise in new home sales, bringing it to its highest level in more than years. The triumvirate of positive data helped offset weak consumer sentiment and durable goods figures.

Greece has been the focus of attention in the sovereign CDS market in recent weeks, and it widened again today to reach a new record wide level. But the real story today came from the Middle East. The Dubai Government announced that it is restructuring Dubai World, an investment company owned by the government, with immediate effect. It has asked creditors for a six-month standstill on its obligations until at least 30 May 2010. Nakheel, a real estate subsidiary of Dubai World, has a convertible bond due next month. The picture is muddied, but it is puzzling that Dubai received $5 billion in bond proceeds from two Abu Dhabi banks but made clear that this is separate from the Dubai World restructuring. From a CDS perspective, much will depend on whether the standstill is voluntary or mandatory. If it is the latter then a credit event is a possibility. Spreads throughout the region widened on the shock news. More volatility can be expected as investors await details of the restructuring.



In Europe the single name market was mixed. Banks were tighter, as were autos and other cyclical sectors. Compass Group widened despite posting annual profits at the top-end of forecasts. Credit investors were concerned by the UK catering firm stating that it is interested in making “infill” acquisitions. Compass is an established defensive name and has performed relatively well during the recession.

In North America, the Markit CDX IG index was flat at 102.5bp, giving back earlier, modest gains. As in Europe the single name picture was mixed with energy and insurance sectors outperforming, while technology, media and telecoms all widened.

“For the general purposes of the Dubai Financial Support Fund…”

As FT Alphaville noted the market was on Wednesday digesting news that the $5bn Dubai had raised from two Abu Dhabi government-controlled banks would not go to paying o
ff Nakheel convert bond holders as expected. Instead the proceeds would go towards the general purposes of the Dubai Financial Support Fund (DFSF).

The DFSF is the support fund created at the onset of the crisis in the Emirates to support the liquidity needs of key government-related entities (GREs). It is being financed by the government’s $20bn debt programme announced in March, of which the $5bn raised on Wednesday was the latest tranche.

The reason why Dubai sovereign CDS markets have been rumbled by the news might very well be connected to the fact that the overall size of the fund’s GRE liabilities has never officially been disclosed.

The likes of Barclays Capital, meanwhile, estimate the liabilities could be as much as $72bn, a figure that runs significantly beyond Dubai’s own ability to refinance without support from Abu Dhabi.



In other words, there’s no telling how big the total hole Dubai has to plug is, much less its strategy for doing so, and more importantly how Dubai World bond holders — the government-owned group which owns Nakheel — rank in the fund’s priorities.

On the latter, the indication from today’s news is that they don’t rank highly at all.

Iraqi bank fund eyes Emirati input

Emirati investors are being targeted by a new fund aimed at funnelling capital to projects in Iraq as the country rebuilds its infrastructure.

The Trade Bank of Iraq plans to launch the fund next January with an initial size of US$250 million (Dh918.2m). That amount could double by the end of next year.

“Iraq is really at an important crossroads,” said Hussein al Uzri, the president and chairman of the Iraqi government-owned bank. “Now we see the businesses coming and substantial numbers of investors.”

Declining revenue hits hotel sector

The hotel sector in Dubai remained depressed last month in what has been a challenging year for the industry.

Hotels in the emirate suffered a 35.3 per cent drop in revenue per available room, the key indicator for the health of the sector, the largest decline in the Middle East and Africa region. Revenue fell to US$198.22 (Dh728.06) per available room last month, from $306.27 in October last year, data from STR Global showed.

The downturn in the global travel market and the increased supply of rooms in Dubai were the main reasons for the fall, said Elizabeth Randall, the managing director of STR Global. Some hoteliers and analysts have described these kinds of levels as the new “norm” for Dubai hotels, which had previously enjoyed what were considered unsustainably high occupancies and rates levels.

Mystery gold cargo linked to Saad, Gosaibi feud

The Qantas freighter QF71 that took off from Perth Airport on November 3 last year bound for London would not have attracted any special attention, despite the fact that it was carrying 1.2 tonnes of gold bullion, then worth about US$28 million (Dh102.8m).

Perth, in Western Australia, is home to Australia’s Gold Corporation Mint, where bullion is processed and turned into standard 12.5kg bricks.

From there, the ingots are shipped daily around the globe to vaults in America, Europe and Asia, evidence of the world’s apparently insatiable appetite for the precious metal.

Icons can also fall victim to reality

There is a precedent for yesterday’s extraordinary announcement that executive control of Dubai World is to be handed over to a Government-appointed “chief restructuring officer” as a prelude to a radical reshaping of the group.

General Motors (GM) had the same kind of status in the US that Dubai World has in that emirate: an iconic corporation that encapsulated the ethos of its country.

GM was Cadillac and Chevrolet, brands as American as baseball and apple pie. Dubai World is DP World and the Palms, businesses that have come to symbolise the emirate’s dynamic growth and glamour.

Abu Dhabi buys into Dubai debt

The US$5 billion (Dh18.36bn) lined up Wednesday by Dubai’s Department of Finance was part of a $20bn bond programme aiming to prop up government entities that borrowed heavily and ran short of cash after the financial crisis.

Dubai raised the first $10bn under the programme in February from the Central Bank. The Dubai Financial Support Fund (DFSF) was established in July to administer the distribution of the cash.

The announcement of another $5bn brings the total so far under the programme to $15bn. Terms of the new bonds were not disclosed, but an adviser to the Government said they were similar to those of the $10bn bond, which came with a 4 per cent interest rate and a 5-year maturity.

Abu Dhabi banks back $5bn Dubai bond

Dubai’s Department of Finance has raised $5bn from two Abu Dhabi banks as part of a $20bn bond programme being managed by the Dubai Financial Support Fund, the government said today.

National Bank of Abu Dhabi (NBAD) and Al Hilal Bank have agreed to buy as much as $2.5bn each of the Dubai government bonds.

The $5bn adds to a $10bn tranche Dubai borrowed from the Central Bank in February. The emirate has been using funds raised under the $20bn programme to support government-owned companies that had borrowed heavily and ran short of cash in the wake of the financial crisis.

Dubai World in reorganisation

Dubai World, one of the emirate’s biggest holding companies, says it is reorganising and seeking an agreement with creditors for a six-month extension on its debt.

Dubai World had previously appointed AlixPartners, a turnaround firm that worked on the bankruptcy of General Motors, to organise an internal shake-up.

The company, which owns the ports operator DP World and the property developer Nakheel, said last month that it had eliminated 12,000 jobs as part of a three-year effort to save US$800 million (Dh2.93 billion).

Dubai World in major new revamp

Dubai’s efforts to stabilise its economy took several turns yesterday, with the emirate receiving new support from banks in neighbouring Abu Dhabi and then moving to take direct control of Dubai World and seek a delay in payments of the company’s debts.

The emirate said yesterday it had lined up US$5 billion (Dh18.35bn) in financing from the National Bank of Abu Dhabi and Al Hilal Bank, both of which are controlled by one of Abu Dhabi’s largest sovereign wealth funds, the Abu Dhabi Investment Council. The two banks agreed to buy $1bn in Dubai bonds immediately, and purchase the remaining debt over the next year.

Later in the day, Dubai announced that it had appointed a London-based accountant to take over the restructuring efforts at Dubai World, the Government-owned conglomerate, and would ask creditors of Dubai World and its property developer Nakheel to agree to delays in repayment of debts.

Wednesday, 25 November 2009

FGB $500m bonds priced at 250bps over mid-swap

UAE-based First Gulf Bank's $500 million (Dh1.8 billion) three-year bonds were priced at 250 basis points over mid-swaps, representing a coupon of four per cent, an executive of the bank said.

The bonds were issued under FGB's recently updated $3.5bn European Medium Term Note Programme.

FGB, the second-largest bank by market capitalisation in Abu Dhabi, completed the sale of bonds last week to investors in Asia and Europe. The bonds are for general corporate purposes and to have a diversified funding mix, he said.

Economic recovery is confirmed next year – but not its shape

Recovery, as various economists propose, may come in the shape of U, V, W, L and some even said it may not be an alphabet character but a mathematical one such as the square root.

In a press briefing with the media, Standard Chartered top economists did not say, which shape growth will look like.

But two things are certain, they say, that there is growth next year and that the possibility of a double dip, which looks like a flash of lightning shape, is unlikely.

British bankers offer harsh advice on Saudi dispute

The fallout from the al Gosaibi-al Sanea battle in Saudi Arabia is “doing enormous damage to the reputation of Saudi Arabia as a whole. What appears to have started as a family dispute is now bringing the whole business sector and Saudi system of corporate governance into disrepute”.

Who says so? None other than the august British Bankers’ Association (BBA). In a strongly worded letter to Lord Davies, the UK business minister, the chairman of the BBA trade policy committee, Thomas Harris, criticises the Saudis’ handling of the whole sordid affair and urges the minister to do something about it on his forthcoming trip to the kingdom.

As you would expect from an organisation representing the interests of the UK financial industry, the BBA is normally a rather restrained and conservative organisation. But from time to time it lets loose.

Emerging Markets to Attract Sovereign Funds, Credit Suisse Says

Middle East sovereign wealth funds may boost investments in emerging markets to 25 percent of new ventures by 2016 as economic growth surges in the developing world, according to Credit Suisse Group AG.

The funds will invest in Africa, Brazil, China and India because “so much wealth is being created” there, George Pavey, a managing director at Credit Suisse’s global markets solutions group, said in an interview today in Dubai. “I wouldn’t be surprised if five or seven years from now a quarter of their new capital is directed to emerging markets,” he said.

Gulf Arab states, including the United Arab Emirates, Qatar, Kuwait and Saudi Arabia, pump about 20 percent of the world’s crude oil and are flush with cash after oil climbed to a record $147.27 in July 2008. The Abu Dhabi Investment Authority managing $328 billion at the end of 2008, economists at the New York-based Council on Foreign Relations estimated in January. The Kuwait Investment Authority had $228 billion, and the Qatar Investment Authority managed $58 billion, the report said.