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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

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.


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.