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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.