Sunday, 29 November 2009
The Dubai Crisis
The tragedy of the black hole in Dubai’s finances is that it has dealt a blow not only to its own reputation but to that of the United Arab Emirates -- and beyond that to the Arab Gulf as a whole. One might even go so far as to say that it has dealt a painful blow to the entire Arab world.
Until the crisis broke -- with the announcement last Wednesday that Dubai was seeking a six-month moratorium on the debt of Dubai World, its government-owned holding company -- the Arab Gulf was widely recognized as the real success story of the Arab world.
It had become a pole of modernity, of high-finance, of high-tech enterprise, of education and culture, of spectacular universities and museums. It had attracted international attention and admiration.
Until the crisis broke -- with the announcement last Wednesday that Dubai was seeking a six-month moratorium on the debt of Dubai World, its government-owned holding company -- the Arab Gulf was widely recognized as the real success story of the Arab world.
It had become a pole of modernity, of high-finance, of high-tech enterprise, of education and culture, of spectacular universities and museums. It had attracted international attention and admiration.
Dubai World refused distress-asset sale: report
Dubai World has refused to offload assets at fire-sale prices to repay obligations, forcing it to seek a debt standstill, a newspaper report on Sunday quoted an unnamed source at the government-controlled firm as saying.
Stocks from Tokyo to New York have been haunted by concern that banks were exposed to state companies in Dubai, though world leaders expressed confidence in the global economic recovery on Friday despite the fears.
"The group absolutely refused in the last few months to sell a number of good investment and property assets at low prices," al-Ittihad newspaper said, quoting a source at Dubai World, the holding company at the center of Dubai's debt crisis.
Stocks from Tokyo to New York have been haunted by concern that banks were exposed to state companies in Dubai, though world leaders expressed confidence in the global economic recovery on Friday despite the fears.
"The group absolutely refused in the last few months to sell a number of good investment and property assets at low prices," al-Ittihad newspaper said, quoting a source at Dubai World, the holding company at the center of Dubai's debt crisis.
Is Dubai right to face its Day of Reckoning? (Re-post)
Next week financial markets will be looking for some pretty speedy answers from Dubai after the sudden decision to suspend payments on the debt of Dubai World.
If the intension is to ring-fence a particular part of state assets then creditors will need to know what they are facing. Just what does Dubai World have as assets? How much are they worth? What can be realized? And how much is available?
There are always two sides to a debt crisis. The lenders are partly culpable. Why did they lend so much to an entity that now can not pay up? What happened to their due diligence and credit assessment? Did they not see the soaring debt levels?
$60bn debt mountain
But going forward lenders will have to realize that having invested in Dubai World they are reliant on the company and its advisers for a solution to their $60 billion debt mountain. It will always be better to reach a solution than no solution for creditors. A disorderly liquidation really would be a nightmare with everybody a loser.
That said the Dubai Government is also going to have to face up to the inconvenient truth that markets do not selectively apply government guarantees. If a sovereign gives its word on one entity’s debt and then goes back on it, then all its sovereign guarantees are open to question.
Actually it is more basic than that: if an entity is a part of the government then the liability of the government is surely unlimited? Well, to argue the reverse would be difficult, unless it is explicitly stated in the reams of documentation.
This is just a fact of life in global markets, not an interpretation of reality. That means it is impossible to contain a credit crisis that involves a sovereign guarantee within the boundaries of one government entity.
The global market response to this news has surely demonstrated this fact. An announcement about the debts of a Dubai Government company brought share prices down as far away as Japan, and even impacted the value of the US dollar.
New credit crunch
In the UAE the impact is going to be similar to the credit crisis last autumn, unless the federal government intervenes very decisively. The cost of money will go up to reflect the greater risk of it not being repaid, and banks will presumably be even less willing to lend money to the private sector, or to the public sector entities with sovereign guarantees.
Actually this situation is by no means unique to the UAE. The $22 billion Algosaibi banking scandal in Saudi Arabia has had a similar impact on the availability of credit to small and medium sized enterprises across the Kingdom.
Yet arguably facing up to a day of reckoning is exactly how a financial crisis should be dealt with. There is a very good argument that the rest of the world is only putting off its ultimate crisis by borrowing even more heavily to bail out global financial markets, and that its final crisis will just be bigger.
Clearing up the debts
Could Dubai just be doing what everybody else ought to be doing? You can certainly argue that by clearing up its books now Dubai will be in a position to recover more strongly later.
But this will be painful and come at a high price for those who lose their jobs and investments in this fall-out. It might be the right commercial response to a difficult position. But then this position should never have been reached in the first place, and for that bankers must also share a part of the blame.
If the intension is to ring-fence a particular part of state assets then creditors will need to know what they are facing. Just what does Dubai World have as assets? How much are they worth? What can be realized? And how much is available?
There are always two sides to a debt crisis. The lenders are partly culpable. Why did they lend so much to an entity that now can not pay up? What happened to their due diligence and credit assessment? Did they not see the soaring debt levels?
$60bn debt mountain
But going forward lenders will have to realize that having invested in Dubai World they are reliant on the company and its advisers for a solution to their $60 billion debt mountain. It will always be better to reach a solution than no solution for creditors. A disorderly liquidation really would be a nightmare with everybody a loser.
That said the Dubai Government is also going to have to face up to the inconvenient truth that markets do not selectively apply government guarantees. If a sovereign gives its word on one entity’s debt and then goes back on it, then all its sovereign guarantees are open to question.
Actually it is more basic than that: if an entity is a part of the government then the liability of the government is surely unlimited? Well, to argue the reverse would be difficult, unless it is explicitly stated in the reams of documentation.
This is just a fact of life in global markets, not an interpretation of reality. That means it is impossible to contain a credit crisis that involves a sovereign guarantee within the boundaries of one government entity.
The global market response to this news has surely demonstrated this fact. An announcement about the debts of a Dubai Government company brought share prices down as far away as Japan, and even impacted the value of the US dollar.
New credit crunch
In the UAE the impact is going to be similar to the credit crisis last autumn, unless the federal government intervenes very decisively. The cost of money will go up to reflect the greater risk of it not being repaid, and banks will presumably be even less willing to lend money to the private sector, or to the public sector entities with sovereign guarantees.
Actually this situation is by no means unique to the UAE. The $22 billion Algosaibi banking scandal in Saudi Arabia has had a similar impact on the availability of credit to small and medium sized enterprises across the Kingdom.
Yet arguably facing up to a day of reckoning is exactly how a financial crisis should be dealt with. There is a very good argument that the rest of the world is only putting off its ultimate crisis by borrowing even more heavily to bail out global financial markets, and that its final crisis will just be bigger.
Clearing up the debts
Could Dubai just be doing what everybody else ought to be doing? You can certainly argue that by clearing up its books now Dubai will be in a position to recover more strongly later.
But this will be painful and come at a high price for those who lose their jobs and investments in this fall-out. It might be the right commercial response to a difficult position. But then this position should never have been reached in the first place, and for that bankers must also share a part of the blame.
Dubai plans appeal to bondholders
Dubai’s government is preparing a campaign to persuade the holders of a bond due for repayment next month to agree to a delay even if that sparks claims that the emirate has defaulted on the debts of a government-backed company, bankers said on Sunday.
Pushing aside concerns about potential legal action, the department of finance is preparing to communicate with the public and with the bondholders of an upcoming $4bn sukuk, or Islamic bond, issued by Nakheel, a major real estate developer, via the new chief restructuring officer of Dubai World, Nakheel’s parent.
It needs to gain the agreement of the holders of three-quarters of the bond’s value. Dubai will also start a press campaign headed by senior members of the supreme fiscal committee and department of finance, according to people familar with the situation.
Pushing aside concerns about potential legal action, the department of finance is preparing to communicate with the public and with the bondholders of an upcoming $4bn sukuk, or Islamic bond, issued by Nakheel, a major real estate developer, via the new chief restructuring officer of Dubai World, Nakheel’s parent.
It needs to gain the agreement of the holders of three-quarters of the bond’s value. Dubai will also start a press campaign headed by senior members of the supreme fiscal committee and department of finance, according to people familar with the situation.
Monday crash for Gulf stock markets inevitable (Re-post)
Will the Gulf stock markets decide to close and take an extra day for their Eid holiday on Monday? Certainly in the UAE with a closure for National Day on Wednesday it must be tempting to declare a longer holiday and face the music later.
But the global financial market reaction to Dubai’s decision to suspend debt repayments from Dubai World was considerable at the end of last week when local markets were closed for Eid, and we can only anticipate a major sell-off to follow locally.
Overreaction
The authorities have done their best to calm local nerves and to caution against an ‘overreaction’ as the Gulf News described it today. But unfortunately stock markets are prone to overreactions. It is in the nature of the beast when receiving unexpectedly bad news.
The 21 per cent improvement in the MSCI Arabian Markets Index this year now looks vulnerable to a complete reversal. This will contribute to an also inevitable fall in the MSCI Emerging Markets Index, up a heady 71 per cent over the same period.
At the end of November the Dubai Financial Market was the top performing regional market, up 28 per cent, with Abu Dhabi up 22 per cent. Seasoned observers thought local stocks already looking a little overbought, though their fears focused mainly on over-borrowed local families rather than the public sector.
The stage is therefore set for a nasty crash, most likely over several days as circuit-breakers are triggered in major stocks.
Exit rush
For those who have clung on to realize maximum stock market profits rather than taking gains early this rush for the exit door is going to be particularly painful. Perhaps the UAE authorities will intervene. But there is not much precedent for this, and they might see it as throwing good money after bad.
But if it is any consolation to market players then they will not be alone. The contagion from the Gulf stock markets to the rest of the emerging markets will be both direct and considerable. Gulf players will be sellers to pay margin calls, and this is also going to be a considerable wake-up call for emerging market stock markets which have gotten far too high.
Mark Mobius thinks this is the start of a 20 per cent correction across the board for the emerging markets, and after their recent massive gains that could be an underestimate of the downside now.
Will this emerging market stock market correction also finally kick Wall Street off its perch and end its record rally from the lows of March? Will oil and even gold prices fall? That is also looks inevitable. This is a stack of dominos waiting to fall.
But the global financial market reaction to Dubai’s decision to suspend debt repayments from Dubai World was considerable at the end of last week when local markets were closed for Eid, and we can only anticipate a major sell-off to follow locally.
Overreaction
The authorities have done their best to calm local nerves and to caution against an ‘overreaction’ as the Gulf News described it today. But unfortunately stock markets are prone to overreactions. It is in the nature of the beast when receiving unexpectedly bad news.
The 21 per cent improvement in the MSCI Arabian Markets Index this year now looks vulnerable to a complete reversal. This will contribute to an also inevitable fall in the MSCI Emerging Markets Index, up a heady 71 per cent over the same period.
At the end of November the Dubai Financial Market was the top performing regional market, up 28 per cent, with Abu Dhabi up 22 per cent. Seasoned observers thought local stocks already looking a little overbought, though their fears focused mainly on over-borrowed local families rather than the public sector.
The stage is therefore set for a nasty crash, most likely over several days as circuit-breakers are triggered in major stocks.
Exit rush
For those who have clung on to realize maximum stock market profits rather than taking gains early this rush for the exit door is going to be particularly painful. Perhaps the UAE authorities will intervene. But there is not much precedent for this, and they might see it as throwing good money after bad.
But if it is any consolation to market players then they will not be alone. The contagion from the Gulf stock markets to the rest of the emerging markets will be both direct and considerable. Gulf players will be sellers to pay margin calls, and this is also going to be a considerable wake-up call for emerging market stock markets which have gotten far too high.
Mark Mobius thinks this is the start of a 20 per cent correction across the board for the emerging markets, and after their recent massive gains that could be an underestimate of the downside now.
Will this emerging market stock market correction also finally kick Wall Street off its perch and end its record rally from the lows of March? Will oil and even gold prices fall? That is also looks inevitable. This is a stack of dominos waiting to fall.
How Dubai's dream sank in a sea of debt
As he flew from Dubai to London last Sunday, Sheikh Mohammed bin Rashid al-Maktoum had plenty on his mind.In the four years since he had become ruler of Dubai, Maktoum had grown used to courting world leaders to visit and invest in his desert emirate. They admired the economic growth he had fostered as Dubai, fast running out of oil, turned itself into a tourism and finance hub.
Maktoum knew that on this trip he would have to strike a more humble tone. After an audience with the Queen at Buckingham Palace, he met Gordon Brown and Lord Mandelson. The damaging effect of the global economic downturn on Dubai’s growth was on the agenda. The sheikh brought reassurances that angry British contractors, caught up in the emirate’s construction collapse, would eventually get paid.
Maktoum also knew that a bigger test to international relations was brewing. But there were few clues until he had jetted out of London.
Maktoum knew that on this trip he would have to strike a more humble tone. After an audience with the Queen at Buckingham Palace, he met Gordon Brown and Lord Mandelson. The damaging effect of the global economic downturn on Dubai’s growth was on the agenda. The sheikh brought reassurances that angry British contractors, caught up in the emirate’s construction collapse, would eventually get paid.
Maktoum also knew that a bigger test to international relations was brewing. But there were few clues until he had jetted out of London.
Dubai debt, damage, and the double dip downturn (Re-post)
Is this the death of Dubai? Almost certainly not. But this is probably the end of the current chapter of the success story of Dubai penned by Sheikh Mohamed. There is much too much water that has pass through Dubai creek for this situation to be remedied overnight.
Although the situation at hand is serious, and grand in the scale of sovereign debt, it hits us at a time where markets are sleeping. The American’s are thanksgiving, the whole of the Arab world is off for Eid, so any ripple or hiccup in a low trading period becomes exacerbated. But why has this sent shockwaves across international markets when hundreds of billions of dollars have been written off during the first phase of the downturn? Well, whether this is $60bn or more, it hits hard, especially when this is considered sovereign debt.
But while there has been talk of refinancing of debt in recent months, this actually came as much of a surprise to the market. This is why headlines over the world over the last few days have centred on Dubai. And why did markets freefall on first hearing of Dubai’s struggle? Well, the investment that Western banks had in Dubai World was significant. HSBC and Standard Chartered are said to be exposed by $25bn. That, and the fact that the dollar is at risk. Could the dollar collapse?
Indeed, Islamic Finance, itself, is being scrutinised and if Nakheel doesn’t repay on its $4bn sukuk, the options for Dubai World start to diminish. Whether or not Dubai World defaults, Dubai is now in the limelight. The critics had previously tried to trash Dubai’s reputation in many other ways. But this is the nail in the coffin. To the layman on the street, Dubai had taken out lots of debt, built some crazy buildings using slave labour, and now can’t repay the debt. It’s a little more complicated than that, but Dubai will find it difficult raising the type of money it once found easy to turn away. That’s a new era for Dubai.
What is important to note, is that strictly Dubai World hasn’t yet defaulted – it has just asked for a delay in the repayment of their $60bn. And while that might not happen, Abu Dhabi, the elder and oil rich emirate will step in to prevent a wholescale collapse that would take much of the Arab reputation back into the sinking sand. Abu Dhabi will want to balance saving Dubai versus maintaining itself as a viable investment hub – the balance between seeming overly eager and scrapping at fire sale assets – which it had always wanted, is how the cynics will paint it.
This is the second phase of the global recession. This is the second dip in the double dip scenario - markets have rebounded far too quickly. The first phase was defined by the bad debt in Western markets – and headline was Lehman. This second phase will headlined as Dubai’s collapse, even though it wasn’t the heart of the problem. A problem, yes, a scapegoat, yes. But the real story is that the problem of global debt is very much alive and Dubai has been part of that problem.END
Although the situation at hand is serious, and grand in the scale of sovereign debt, it hits us at a time where markets are sleeping. The American’s are thanksgiving, the whole of the Arab world is off for Eid, so any ripple or hiccup in a low trading period becomes exacerbated. But why has this sent shockwaves across international markets when hundreds of billions of dollars have been written off during the first phase of the downturn? Well, whether this is $60bn or more, it hits hard, especially when this is considered sovereign debt.
But while there has been talk of refinancing of debt in recent months, this actually came as much of a surprise to the market. This is why headlines over the world over the last few days have centred on Dubai. And why did markets freefall on first hearing of Dubai’s struggle? Well, the investment that Western banks had in Dubai World was significant. HSBC and Standard Chartered are said to be exposed by $25bn. That, and the fact that the dollar is at risk. Could the dollar collapse?
Indeed, Islamic Finance, itself, is being scrutinised and if Nakheel doesn’t repay on its $4bn sukuk, the options for Dubai World start to diminish. Whether or not Dubai World defaults, Dubai is now in the limelight. The critics had previously tried to trash Dubai’s reputation in many other ways. But this is the nail in the coffin. To the layman on the street, Dubai had taken out lots of debt, built some crazy buildings using slave labour, and now can’t repay the debt. It’s a little more complicated than that, but Dubai will find it difficult raising the type of money it once found easy to turn away. That’s a new era for Dubai.
What is important to note, is that strictly Dubai World hasn’t yet defaulted – it has just asked for a delay in the repayment of their $60bn. And while that might not happen, Abu Dhabi, the elder and oil rich emirate will step in to prevent a wholescale collapse that would take much of the Arab reputation back into the sinking sand. Abu Dhabi will want to balance saving Dubai versus maintaining itself as a viable investment hub – the balance between seeming overly eager and scrapping at fire sale assets – which it had always wanted, is how the cynics will paint it.
This is the second phase of the global recession. This is the second dip in the double dip scenario - markets have rebounded far too quickly. The first phase was defined by the bad debt in Western markets – and headline was Lehman. This second phase will headlined as Dubai’s collapse, even though it wasn’t the heart of the problem. A problem, yes, a scapegoat, yes. But the real story is that the problem of global debt is very much alive and Dubai has been part of that problem.END
Was the Dubai Debt Crisis Inevitable?
Global markets are reeling from news that Dubai World, the investment arm of Dubai's government, is seeking to suspend payments for its massive debt. Dubai, once seen as the Middle East playground for the super-wealthy, appears unable to support its breakneck construction and infrastructure projects. Bloomberg News reports it could owe as much as $80 to $90 billion. Will financial markets on Wall Street as well as Europe and Asia recover or will Dubai's descent drag them down? How worried should we be about Dubai?
Isolated Incident, The New York Times's Paul Krugman argues. "[Y]ou can see this as basically just another commercial real estate bust. Either you view Dubai World as nothing special, despite sovereign ownership, as Willem Buiter does; or you think of the emirate as a whole as, in effect, a highly leveraged CRE investor facing the same problems as many others in the same situation. Finally, you can see Dubai as sui generis. And really, there has been nothing else quite like it."
Disaster Averted? Time's Justin Fox urges calm. "As of this morning, things are already calming down a bit. Some Asian markets were down sharply overnight, and U.S. stock markets started the day 2% down. But European markets, which took the brunt of the hit yesterday, are up on the day," he writes. "A return to the indiscriminate panic of last fall would be really bad. A move toward a more skeptical attitude toward risky assets, in which investors feel compelled to do more work to sort out the dodgy from the relatively safe, would be a really healthy development. So far I think we're getting the second reaction."
Isolated Incident, The New York Times's Paul Krugman argues. "[Y]ou can see this as basically just another commercial real estate bust. Either you view Dubai World as nothing special, despite sovereign ownership, as Willem Buiter does; or you think of the emirate as a whole as, in effect, a highly leveraged CRE investor facing the same problems as many others in the same situation. Finally, you can see Dubai as sui generis. And really, there has been nothing else quite like it."
Disaster Averted? Time's Justin Fox urges calm. "As of this morning, things are already calming down a bit. Some Asian markets were down sharply overnight, and U.S. stock markets started the day 2% down. But European markets, which took the brunt of the hit yesterday, are up on the day," he writes. "A return to the indiscriminate panic of last fall would be really bad. A move toward a more skeptical attitude toward risky assets, in which investors feel compelled to do more work to sort out the dodgy from the relatively safe, would be a really healthy development. So far I think we're getting the second reaction."
Dubai needs to stop the contagion, fast
The crisis in Dubai has been a sharp reminder that there are still more aftershocks of the credit crunch to ripple around the globe. When Dubai World announced it was seeking a six-month debt standstill, the fear was this was a Lehman Brothers of the Middle East ushering in a dangerous second phase of the financial crisis. Just as economies were beginning to recover from the biggest shock since the Great Depression of the 1930s, it looked as if we were teetering again on the edge.
Dubai is a monument to the excesses that gave us this global financial crisis. The boom in the former British protectorate was spectacular and so has been the bust. Property prices went as high as its famous skyscrapers before plunging back down to earth. The 1.2m expats who went there in search of a new life, including 120,000 Britons, have known that the good times had ended, although most have chosen to stick it out.
If banks had an excuse for their reckless behaviour during the credit boom, it was that many of the assets they created that turned toxic were highly complex. In the case of Dubai there is no such excuse. Even casual observers could see this was a boom built on sand. Yet the banks kept lending, and some will suffer big losses.
Dubai is a monument to the excesses that gave us this global financial crisis. The boom in the former British protectorate was spectacular and so has been the bust. Property prices went as high as its famous skyscrapers before plunging back down to earth. The 1.2m expats who went there in search of a new life, including 120,000 Britons, have known that the good times had ended, although most have chosen to stick it out.
If banks had an excuse for their reckless behaviour during the credit boom, it was that many of the assets they created that turned toxic were highly complex. In the case of Dubai there is no such excuse. Even casual observers could see this was a boom built on sand. Yet the banks kept lending, and some will suffer big losses.
As Dubai crashes from wonder to blunder, who will go down with it?
Dubai's story of hotels and hubris in the desert sands is well rehearsed, but where will the narrative end? A relatively happy conclusion would be for the damage to be localised and containable, for Abu Dhabi or the International Monetary Fund to step in as backer, and for world markets to regain a measure of calm. An unhappy denouement hardly bears thinking about.
The only surprise about the downfall is that it came as a surprise. Neighbouring Gulf states could see it coming and have been keen for some time to differentiate themselves from their wayward brother emirate. On a recent visit to Qatar, everyone bent my ear about the huge contrast between them and Dubai. To be fair, if Dubai is the Middle East's answer to Las Vegas, Qatar is the equivalent of Halifax, Nova Scotia.
With little oil to its name, Dubai set about transforming itself from a small pearl-fishing port to the "eighth wonder of the world", with the seven-star Burj al-Arab hotel, the shopping malls, the expat villas and vaunting ambitions to become a world-class financial centre. But the improvident Gulf state traded oil-dependency for property-dependency – or, more accurately, debt-dependency.
The only surprise about the downfall is that it came as a surprise. Neighbouring Gulf states could see it coming and have been keen for some time to differentiate themselves from their wayward brother emirate. On a recent visit to Qatar, everyone bent my ear about the huge contrast between them and Dubai. To be fair, if Dubai is the Middle East's answer to Las Vegas, Qatar is the equivalent of Halifax, Nova Scotia.
With little oil to its name, Dubai set about transforming itself from a small pearl-fishing port to the "eighth wonder of the world", with the seven-star Burj al-Arab hotel, the shopping malls, the expat villas and vaunting ambitions to become a world-class financial centre. But the improvident Gulf state traded oil-dependency for property-dependency – or, more accurately, debt-dependency.
Natural Gas: Powering the Dubai Overshoot
You’ve seen the before-and-after pictures, like a Vegas slug of glass rising in the desert. And, you’ve read the stories about indebted foreign workers leaving their Range Rovers behind, as they flee. Perhaps you’ve seen video of the indoor ski arcade? Or, caught the gaze of the photographer’s eye on the poor, underpaid migrant workers constructing the Burj Dubai. Welcome to today’s obligatory Dubai blog post. Brought to you courtesy of some very hot, sovereign default action as the UAE’s most glittery city announced overnight a request for a stay on debt payments from Dubai World. How could a country so rich in energy resources have gotten itself into such a mess?
It’s generally assumed that just about every Mid-East oil producer is a big, net exporter of oil and while that’s also true for the United Arab Emirates what’s worth noting, or retelling today, is the means by which the UAE, principally because of Dubai (an Emirate within the UAE), started to become a net importer of natural gas.
As in the rest of the world, though primarily in Asia, the Mid-East is now finally in the process of transitioning away from using industrial diesel for its power generation–though in many cases starting from very high levels. You can understand why that practice lingered in places like Saudi Arabia for so long, when the cost of oil extraction was effectively near zero.
It’s generally assumed that just about every Mid-East oil producer is a big, net exporter of oil and while that’s also true for the United Arab Emirates what’s worth noting, or retelling today, is the means by which the UAE, principally because of Dubai (an Emirate within the UAE), started to become a net importer of natural gas.
As in the rest of the world, though primarily in Asia, the Mid-East is now finally in the process of transitioning away from using industrial diesel for its power generation–though in many cases starting from very high levels. You can understand why that practice lingered in places like Saudi Arabia for so long, when the cost of oil extraction was effectively near zero.
Putting Dubai in Perspective
OF THE HANDFUL OF RESONANT QUOTATIONS that will be enshrined for the ages by chroniclers of the financial crisis, one is probably cited most frequently by the more thoughtful participants in those barstool sessions on "What just happened?" that remain common, at least here in New York.
It is this observation, delivered in a March 2007 speech by Federal Reserve governor Kevin Warsh: "Liquidity is confidence."
Prosaic on the surface, it is a succinct reminder that liquidity is not some quantifiable raw commodity refined by central banks or a naturally occurring element of the economic atmosphere, but a result of the way policy and psychology, expectations and reality, are interacting at a given moment.
It is this observation, delivered in a March 2007 speech by Federal Reserve governor Kevin Warsh: "Liquidity is confidence."
Prosaic on the surface, it is a succinct reminder that liquidity is not some quantifiable raw commodity refined by central banks or a naturally occurring element of the economic atmosphere, but a result of the way policy and psychology, expectations and reality, are interacting at a given moment.
Dubai World Unit Faces Default Test Monday With Bond Payment
Debt-laden Dubai World's unit Jebel Ali Free Zone Authority, or Jafza, faces on Monday a coupon payment on a 7.5 billion U.A.E dirham ($2.04 billion) Islamic bond in the first key test of whether it will default.
The Islamic bond, or sukuk, was issued in November 2007 through a Cayman Islands-registered company called JAFZ Sukuk Limited and pays 130 basis points over the six-month Emirates Interbank Offered Rate, according to Zawya.com.
The coming coupon payment is estimated to be between AED125 million and AED135 million, according to analyst calculations.
Spokespersons for Dubai World declined to comment on the payment Saturday, a holiday in the U.A.E. The Jafza sukuk is the first payment due for a Dubai government-related entity since the restructuring announcement Wednesday, which sent global markets and banks into a panic before the weekend.
Dubai World's request for a standstill will include a key $3.52 billion bond owned by Nakheel, the developer behind Dubai's palm-shaped islands, that matures on Dec. 14.
Payments on the sukuk are made semi-annually, on May 27 and Nov. 27. Bankers said that payment is due on Monday, since Nov. 27 fell on a weekend in the U.A.E.
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.
Jafza operates a free trade zone and industrial parks in the port town of Jebel Ali, outside of the city of Dubai, and is a unit of Economic Zones World, or EZW. EZW is operated by Dubai World.
S&P and Moody's downgraded Jafza and other Dubai government related-entities Wednesday, after Dubai World said it would restructure and ask for a standstill on all debts until at least May 2010. S&P placed Jafza on creditwatch with negative implications. Moody's downgraded its issuer and debt ratings to Ba1 from Baa1.END
The Islamic bond, or sukuk, was issued in November 2007 through a Cayman Islands-registered company called JAFZ Sukuk Limited and pays 130 basis points over the six-month Emirates Interbank Offered Rate, according to Zawya.com.
The coming coupon payment is estimated to be between AED125 million and AED135 million, according to analyst calculations.
Spokespersons for Dubai World declined to comment on the payment Saturday, a holiday in the U.A.E. The Jafza sukuk is the first payment due for a Dubai government-related entity since the restructuring announcement Wednesday, which sent global markets and banks into a panic before the weekend.
Dubai World's request for a standstill will include a key $3.52 billion bond owned by Nakheel, the developer behind Dubai's palm-shaped islands, that matures on Dec. 14.
Payments on the sukuk are made semi-annually, on May 27 and Nov. 27. Bankers said that payment is due on Monday, since Nov. 27 fell on a weekend in the U.A.E.
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.
Jafza operates a free trade zone and industrial parks in the port town of Jebel Ali, outside of the city of Dubai, and is a unit of Economic Zones World, or EZW. EZW is operated by Dubai World.
S&P and Moody's downgraded Jafza and other Dubai government related-entities Wednesday, after Dubai World said it would restructure and ask for a standstill on all debts until at least May 2010. S&P placed Jafza on creditwatch with negative implications. Moody's downgraded its issuer and debt ratings to Ba1 from Baa1.END
Delay to publication of clippings this morning!
With events in Dubai you may appreciate the volume of stories that need to be read and assessed before publication.
If you subscribe to the 0500GMT email edition, it may lack substance, please check back over the next two hours.
My apologies and I wish you a peaceful Sunday, wherever you are in the World
If you subscribe to the 0500GMT email edition, it may lack substance, please check back over the next two hours.
My apologies and I wish you a peaceful Sunday, wherever you are in the World
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