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Sunday, 14 February 2010

No Debt Restructuring Offer Put Forward to Lenders: Spokeswoman

Dubai has not made an offer to creditors to restructure the debt of Dubai World, a spokeswoman of the emirate’s department of finance said, declining to be identified because of government policy.END

Dubai Stocks Drop Most in Almost 3 Weeks on Dubai World Report

Dubai stocks retreated the most in almost three weeks as Zawya Dow Jones said Dubai World, the state-owned holding company seeking to restructure $22 billion of debt, may offer creditors 60 cents on the dollar after seven years. Kuwaiti’s benchmark index surged the most in six months.

Emaar Properties PJSC, the builder of the world’s tallest skyscraper, dropped the most this month. Dubai Islamic Bank, the United Arab Emirates’ largest bank complying with Islamic banking rules, fell the most in two months. Dubai’s DFM General Index lost 3.5 percent, the most since Jan. 26, to 1,617.51. Abu Dhabi’s benchmark index declined 0.6 percent.

“The sizable haircut and the length of the deferral” as reported “is a disappointment,” said Julian Bruce, director of equity sales at EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank.

Dubai World To Offer Bks 60% Of Debt In 7-Yrs-Sources

Dubai World may offer creditors 60 cents on the U.S. dollar guaranteed by the sheikdom's government as part of a deal to reschedule $22 billion of debt, two people familiar with the matter told Zawya Dow Jones.

Under the terms of the deal, banks including HSBC Holding PLC (HBC), Royal Bank of Scotland Group PLC (RBS), Standard Chartered PLC (STAN.LN) and Abu Dhabi Commercial Bank (ADCB.AD), will receive 60% of the money they're owed by the troubled conglomerate after seven years, the persons said.

The offer, which pays no interest, will come with a sovereign guarantee. An alternative offer involves creditors receiving full payment, including 40% of their Dubai World debt in the form of assets in Nakheel, the company's property unit, with no government guarantee over the same seven-year period, the persons, who declined to be identified because of confidentiality agreements, said.

A spokesman for Dubai World declined to comment on the terms of the offer, which is still to be made, when called by Zawya Dow Jones. Ahmed Al Shaikh, a spokesman for Dubai government, didn't answer calls. "There will be two offers on the table by the end of April," one banker, who is familiar with negotiations, told Zawya Dow Jones.

The cost of insuring Dubai's sovereign debt against default rose to its highest level since November Friday as concerns resurfaced over the emirate's large debt and a delay in presenting a deal to Dubai World creditors.

Dubai's five-year credit-default-swap spread--a key measure of credit risk--rocketed close to 50 basis points Friday to trade up at 632 basis points in late trading, according to CMA DataVision.

The emirate is struggling to deal with debts estimated to exceed $80 billion that helped it build infrastructure and rise to become a global city during the boom of the last decade. In November, Dubai World shocked international investors when it asked for a six-month standstill agreement to enable it to restructure $26 billion of debt.

Dubai shares gave up early gains to trade down 0.7% at 1665.33 points Sunday morning after Zawya Dow Jones revealed terms of the proposed Dubai World debt deal. Worries over the company's debt repayment plans sparked a selloff after initial gains in the market, said one trader at Shuaa Securities.END

UAE: Underweight

This is going to be the end of the 2010 GCC outlook marathon; this year I covered four out of the six GCC countries but next year I’ll include Bahrain and Oman.

Dubai has been stealing headlines in the past couple of months, unfortunately only spilling bad news.

“Dubai World Seeks to Delay Debt Payments as Default Risk Soars” Bloomberg (Nov 26, 2009)
“S&P downgrades ratings on four UAE banks” Arabian Business (Dec 3, 2009)
“Dubai World asset sale nears, debt talks plod.” Reuters (Feb 3, 2010)

State-owned conglomerate, Dubai World, shocked global markets when it requested a standstill on its USD26 billion worth of debt. This wrote-off all signs of recovery, even though Abu Dhabi gave them a little help.

After a contraction of 3% in real GDP, the UAE is expected to grow 2% in 2010; the slowest rate in the GCC. This was due to lower oil prices along with collapse of the real estate. Moreover, Dubai debt issue is expected to pull down the economy as it accounts for 33% of UAE’s GDP.

CDS are not looking good
Dubai’s debt insurance has been gradually raising; they are up 130 bps this month. Dubai CDS rose above 600 bps for the first time since November; which means that in order to insure USD10 million it will cost USD 600,000.

Dubai is considered one of the riskiest sovereigns in the world, behind only Argentina, Venezuela, Ukraine and Pakistan.
Low inflation
The inflation in the UAE has hit a nine year low of 1.5%, primarily due to a decrease in the households category.
In relative terms, UAE equities might look cheap when compared to the emerging markets, as the UAE trades at a 7x P/E multiple against 13x for EM (2010E). Nevertheless, we have to adjust for various aspect to get a better “apples to apples” comparison. UAE’s debt-to-equity ratio is 83%, while the EM is 33%. If we take the assumption of raising equity to level the D/E ratio to 50%, UAE’s equities will trade at a P/E of 12x, which doesn’t look too attractive.
Below is a chart of Dubai Government holdings:

Air Arabia’s quarterly profit falls, but beats forecasts

Air Arabia, the low-cost carrier based in Sharjah, flew past most analysts’ profit expectations for the latest quarter even as it reported double-digit declines for both the three months and the full year.

As the heavy weather continued for the airline industry, the carrier said its net profit fell 15.2 per cent in the fourth quarter of last year and by 11.3 per cent, by Reuters’ calculations, for the latest year.

“The previous 12 months represented one of the most challenging periods in the history of the global aviation sector, as pressure on yields increased significantly as a consequence of the worldwide financial crisis,” said Sheikh Abdullah bin Mohammad Al Thani, the chairman of Air Arabia.

Qatar-Turkey gas pipeline talks

Qatar and Turkey are holding preliminary talks to install gas pipeline between Doha and Istanbul, says the visiting Turkish Premier.

Recep Tayyib Erdogan told a local Arabic daily in an interview that Qatar and Turkey share similar views on key international and regional issues.

The Turkish Prime Minister, who is in Doha to participate in the ongoing US Islamic World Forum, hailed Qatari efforts to find peaceful solution to the Darfur crisis, indicating that Ankara plans to launch development projects like schools, hospitals and water wells in Darfur region.

Bharti offers $10.7 bln for Zain Africa ops-reports

Bharti Airtel (BRTI.BO) has offered up to $10.7 billion for the African assets of Kuwaiti telecom group Zain (ZAIN.KW), Kuwaiti newspapers reported on Saturday, as India's largest mobile operator makes a renewed foreign push.

Zain's board is expected to meet soon to discuss Bharti's offer, local daily al-Rai said in an unsourced report.

Officials at both firms were not immediately available for comment.

Dubai debt write-offs far from over for UAE banks (Re-post)

UAE bank full-year results for 2009 are coming in line with expectations, and feature substantial write-offs for the Algosaibi and Saad groups in Saudi Arabia. But the big gorilla in the front drawing room remains bank write-offs for the Dubai real estate crash.

Dubai World may have declared a $22 billion debt restructuring that brought negative headlines around the world from November 25th to mid-December last year, but Dubai World debt has not yet been classified by any UAE bank as non-performing.

UP provisions

That said, the Emirates NBD results showing a nine per cent fall in annual net profits to $897 million for 2009 did include the bank’s first write-down against Union Properties, Dubai’s second largest property developer that is partly owned by the bank. But $86 million is unlikely to be the last write-off against Union Properties.

The largest bank in the Gulf States said sovereign debt accounted for 22 per cent of its $58.3 billion loan book, or $12.8 billion of which analysts attribute the majority to Dubai Government related entities including Dubai World.

Provisions are guided by the UAE Central Bank which is fairly strict in demanding that non-performing loans be recognized according to international accounting standards. If such losses arise in the course of 2010 then it will be the accounts of this year that take the biggest hit.

Nobody really knows how large total losses from the collapse of the Dubai property boom will prove to be, and there are also non-performing loans in the northern emirates and Abu Dhabi as well. Indeed, the banks themselves must have an idea but are by no means sure of the precise total, and will still be hoping for the best with Dubai World, for example.

Banking crisis not over

However, to talk as some of the popular local media likes to do of a quick recovery in the UAE banking sector is clearly very premature. The full extent of the problem facing the sector in 2010 has not even be finalized, let alone resolved.

In the early 1980s, which government ministers have started to cite as a model for dealing with the current situation, several UAE banks went through hurried mergers and reorganizations as the true extent of bank finances became apparent. A similar local banking crisis in the aftermath of the recent real estate crash and global financial crisis must therefore seem a logical proposition.

But there is no need to panic. The UAE Government has guaranteed all bank deposits of any size, and that is one of the best guarantees in the world.END