Wednesday, 30 June 2010
Don’t let Dubai’s debt pile fool you. The Gulf emirate still has the ambition to shock the world with its mammoth projects. Al Maktoum International airport, a huge $32bn development - nearer the border with Abu Dhabi than Dubai city itself - opened its first runway and cargo terminal to 12 freighter operators this week ahead of next March’s opening of a new passenger terminal - but the plan is to develop the world’s busiest airport.
Al Maktoum may be a legacy of Dubai’s boom years, which have now turned into a $110bn debt mountain and gaping real estate overhang. But the government shows no signs of slowing down aggressive expansion of both passenger and cargo flights, as the emirate seeks to exploit its strategic position and healthy track record in the industry.
The two terminal’s at Dubai’s existing airport, located near the city’s original business district, last year handled just shy of 50m passengers, but with y-on-y growth of almost 18 per cent in the January-May period, Paul Griffiths, chief executive of Dubai Airports, says the “signs are looking good” and this year could see an additional 5-6m people passing through the city. Cargo over the same period has risen 27 per cent. And that growth is coming as the global industry faces serious challenges.
“The Middle East is breaking the mould and Dubai is leading that charge,” he tells the Financial Times.
Since Dubai received its first passenger flight in 1937, aviation has proved a cornerstone of the city’s rapid growth, complementing the traditional entrepot trade around the creek.
The blows to Dubai just keep on coming. Moody’s downgraded government-linked Dubai Holding Commercial Operations Group (DHCOG) yet again today, and warned that more downgrades could come.
DHCOG, the non-financial arm of Dubai Holding – an entity owned personally by Dubai’s ruler Sheikh Mohammed bin Rashid al Maktoum – is often said to be one of the healthier parts of the conglomerate, thanks to its ownership of companies such as the Jumeirah Group.
However, like a multitude of other Dubai-linked vehicles, it too got heavily involved in property development in the ritzy emirate, and is now paying the price.
Dubai shares declined, leading the drop in the Gulf, after a slump in U.S. consumer confidence fueled concern about the global economic recovery. Shuaa Capital PSC fell as the head of its brokerage division resigned.
The DFM General Index lost 1.4 percent to 1,461.8, the lowest since February 2009. The measure tumbled 21 percent this quarter, the most since the fourth quarter of 2008. Investment bank Shuaa slid the most in a week and Emirates NBD PJSC, the United Arab Emirates’ biggest bank by assets, also declined. The Bloomberg GCC 200 Index retreated 0.5 percent at 2:07 p.m. in Dubai. Crude oil has fallen 8.2 percent this quarter.
Declines are “in line with the global backdrop,” said Ali Khan, head of cash-equity trading at Dubai-based Arqaam Capital Ltd. “Focus is returning to the euro zone, disappointing data in the U.S. and weaker oil.”
Nakheel PJSC started cash payments to trade creditors as the Dubai World-owned property company seeks to restructure $10.5 billion of liabilities after real- estate prices slumped in the emirate.
Nakheel started making “40 percent cash payment to our trade creditors,” according to a company statement today. “The announcement marks significant progress in our recapitalization plan following on from the initial payments to trade creditors of 500,000 dirhams or less which commenced in March.”
Nakheel, the builder of palm-shaped islands off Dubai’s coast, said in March that trade creditors would be offered 100 percent recovery of their claims -- 40 percent through a cash payment and 60 percent through a publicly tradable Islamic bond, paying 10 percent return annually. The Dubai government in March pledged to pump $8 billion into Nakheel, and will take over its ownership from Dubai World after the restructuring is complete.
UAE banks face Dubai World losses of 10%-20%, says Moody's - Business Intelligence Middle East - bi-me.com - News, analysis, reports
UAE banks may need to set aside as much as 20% of their loans to state- owned Dubai World to cover losses after it announced a US$23.5 billion debt restructuring, reported Bloomberg, citing Moody’s Investors Service.
Losses as a result of the new debt terms “will be manageable and within a range of 10%-20% on average for the exposed banks,” John Tofarides, a bank analyst at Moody’s told Blooombeg in a phone interview from Dubai Tuesday.
Moody’s estimates the Dubai World restructuring will wipe out between 6%-12% of the banks’ regulatory capital, he said.
The Gulf’s investment companies have come a long way since cracking last year under the weight of too much borrowing and too little cash, but analysts say a return to financial health may still be some way off.
Several investment companies based in Kuwait and Bahrain started to default on financial obligations and restructure debt last year.
Global Investment House (GIH), one of Kuwait’s largest investment firms, missed a payment on a US$200 million (Dh734.6m) loan in December 2008.
It’s that time of year when projects are shelved in this part of the world. The summer is with us in full intensity, people are leaving for holidays and the holy month of Ramadan approaches. All are disincentives for implementing ambitious strategies.
We’ve seen it in a number of areas recently. The great wave of initial public offerings (IPOs) forecast for the first half of the year has not materialised and, if it does happen at all, will have to wait until the autumn.
That is as much to do with the state of global stock markets as it is local climatic considerations, but it’s part of a trend: don’t rush into it now; take a break and think again later in the year.
A Bahrain court ruling yesterday supported the decision of the Central Bank of Bahrain (CBB) to place Awal Bank into administration.
The CBB said the ruling in its favour came following an appeal launched by the former chairman of Awal Bank against the decision made by the central bank on July 30 last year to place Awal Bank into administration.
The ruling supports the CBB's decision to place Awal Bank into administration due to Awal Bank's defaults on certain of its obligations in June last year, under Article 136 of the Central Bank of Bahrain and Financial Institutions Law (Decree No 64 of 2006).
The Qatar Investment Authority is considering taking a strategic stake in National Bank of Greece, the country's biggest lender, according to people familiar with the talks.
The Gulf state's sovereign wealth fund, via its unit Qatar Holding, was examining taking about 5-7 per cent of NBG, equivalent to about €250m ($305m), in line with an investment policy of buying stakes below 10 per cent in financial institutions, they said.
The acquisition, if it goes ahead, would help to boost confidence in the Greek banking system, which is under pressure as a result of the country's ongoing sovereign debt crisis.
HSBC Holdings Plc is overtaking CIMB Group Holdings Bhd. as the top underwriter of Islamic bonds as sales from the Gulf pick up and corporate issuance from Malaysia, the biggest market for the debt, declines.
HSBC, Europe’s biggest lender by market value, arranged $1.6 billion of global sukuk so far in 2010, about 25 percent of the total, led by Saudi Electricity Co.’s issuance in May, according to data compiled by Bloomberg. CIMB Group, Malaysia’s second-largest banking group, led $1.4 billion of sales of debt that complies with the religion’s ban on interest. Last year, CIMB was the top underwriter, managing $4.4 billion of offerings.
“The origin of the issuer may have an impact on the decision to hire which underwriter,” Azrul Azwar Ahmad Tajudin, chief economist at Bank Islam Malaysia Bhd., the country’s oldest Shariah-compliant bank, said in an interview in Kuala Lumpur yesterday. “If the issuance amount is huge, issuers may have some level of comfort with a foreign bank.”