Tuesday, 25 May 2010
Back in 2008 in the lead up to the collapse of Lehman Brothers, there was much talk in the oil-rich Gulf - then enjoying an over-hyped petrodollar fuelled boom - of the region being able to decouple from the world’s travails and avoid the storm clouds of the global financial crisis.
How times have changed. As concerns about Europe’s sovereign debt crisis and the threat of a Korean conflict sent world markets tumbling, the Gulf’s bourses took their worst hammering for months.
Saudi Arabia, the Arab’s world largest economy and home to it biggest stock market, led the way, diving 6.8 per cent - its largest loss in 18 months. Dubai’s benchmark stock index declined 4.6 per cent, while Qatar’s market fell 4.2 per cent.
Saudi shares lost the most in 18 months, leading a drop in the oil-rich Gulf, as crude and global stock markets slumped on concern Europe’s debt crisis will spread and as tensions grew in the Korean peninsula.
Saudi Basic Industries Corp., the world’s largest petrochemical maker known as Sabic, sank 10 percent, the most since October 2008. National Industrialization Co. slid to the lowest in seven months. The Tadawul All Share Index plunged 6.8 percent, the biggest drop since November 2008, to 5,760.33. The region’s Bloomberg GCC 200 Index fell 5.5 percent. Dubai’s index lost 4.6 percent as the International Monetary Fund said the emirate’s economy will contract this year.
“Investors are reacting to the drop in oil prices, coupled with the global slump and the European crisis,” said Kifah Maharmeh, general manager of Al Dar Shares & Bonds in Abu Dhabi. “The sharp decline in the Saudi market was unexpected.”
Saudi Arabia's Arriyadh Development Company expects to receive government approval for a project worth more than 13 billion riyals ($3.47 billion) in the country's capital Riyadh, its chief executive said on Tuesday.
The project, part of the redevelopment plan for downtown Riyadh, will be funded largely by the government and members of a consortium, Khalid al-Dughaither told reporters on the sidelines of a MEED conference.
The project, called Duhairah District, will be constructed in nine stages over 15 years, and includes residential, retail and tourism components, he said.
Dubai’s economy will shrink about 0.5 percent this year, the International Monetary Fund said, marking the second year of contraction for the debt-laden emirate.
Abu Dhabi, the largest of the United Arab Emirates and owner of more than 90 percent of the country’s oil reserves, will grow 3.7 percent in 2010, Masood Ahmed, the IMF’s director for Middle East and Central Asia, told reporters in Dubai today.
Real-estate prices in Dubai, the second-largest emirate in the U.A.E., have plummeted about 50 percent from their peak in late 2008. The emirate had to seek a $20 billion bailout from Abu Dhabi last year after borrowing $109 billion, according to IMF estimates, to build itself into a tourism and financial center.
The tantalizingly close restructuring of Dubai World’s $23.5 billion debt has provided the United Arab Emirates with a rare Dunkirk moment.
In 1940, the British snatched victory from the jaws of defeat and certain invasion by evacuating 300,000 troops from the beaches of northern France. As we all know, Britain with the help of its allies recovered from the near disaster to eventually defeat Hitler’s Germany and the Axis powers. The rest is history.
Officials in the U.A.E. are now claiming a similar turning point in Dubai’s battle to defeat the all out assault on its economy by the dark forces of the global financial crisis. The scale of the estimated $100 billion of debt racked up by Dubai, and its so-called government related entities, has presented the biggest challenge to the U.A.E.’s hereditary rulers since the nation emerged from its colonial past into an uncertain future in 1971.
Amid the debt turmoil and resulting series of credit rating downgrades to have hit Dubai in the past year, one unusual and exotic instrument has retained its high standing throughout.
While private and government companies in the Gulf have been downgraded, rating agencies have left Tamweel’s $210m Islamic residential mortgage-backed security – structured by Morgan Stanley and Standard Chartered in 2007 – untouched.
Likewise, tranches of a $1.1bn Islamic asset-backed security called Sun Finance, issued by Sorouh Real Estate of Abu Dhabi in August 2008, have also kept their high ratings.
If Dubai sought proof of its connectivity with the global economy it received ample evidence last November when it released a now infamous statement requesting a standstill with creditors of Dubai World.
Fragile markets around the world were thrown into a tailspin, gold hit a record peak and fears about sovereign debt were heightened, propelling Greece to the forefront of investors’ minds.
Six months later and many of those fears have materialised in the wake of Europe’s sovereign debt crisis. Greece is centre stage and there is much nervous chatter about a double-dip recession. Yet, amid the gloom Dubai has delivered a positive message. After weeks of talks Dubai World has reached an agreement with its main creditors about its restructuring proposal.
Oman’s Blue City, a $20 billion real estate project central to the country’s economic transformation, is on the brink of liquidation and its fate may hinge on talks between bondholders trying to salvage their investment.
Owners of $661.5 million worth of Blue City bonds are discussing measures to push the project ahead, including trying to reduce the number of bondholders involved, a person familiar with the talks said. A vote on liquidating the project, proposed by holding company Al Sawadi Investment & Tourism LLC, has been put on hold, the person said.
“If it’s not handled appropriately and transparently, it could tarnish Oman’s image as an investment destination at a time when Oman is trying to diversify and develop its tourism sector,” said John Sfakianakis, Riyadh-based chief economist at Banque Saudi Fransi.