Wednesday 2 December 2009

COMMENT: Dubai or not to Buy ( Russian perspective )

We expect Dubai World’s debt problems to be successfully resolved in the not-too-distant future. We think that all outstanding problems with maturing debt likely to be settled either through restructuring the debt, or through repayment from sovereign funds or possibly IMF assistance.

On Sunday, the UAE central bank stated it would consider supporting Dubai World and/or Nakheel creditors. A successful resolution of the crisis should mean the adverse effects of the news (outside the Emirates) prove short-lived and lead to a broad-based market rebound.

However, the longer those problems linger, the greater the danger to the Russian equity market’s 2009 gains. The Director General of the Emirate’s Department of Finance has said that the government does not guarantee Dubai World debt, and we believe this leaves open the door for a potential default by Dubai World or Nakheel. One potential implication of this could be a dramatic spike in global investor risk aversion, leading to considerable capital flight from all emerging markets, and Russia in particular.

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