Wednesday, 2 December 2009
Alwaleed Says ‘Mature’ Banks Made Wrong Assumptions on Dubai
Prince Alwaleed bin Talal, the billionaire Saudi investor, said banks that loaned money to Dubai World can’t claim to be victims of the emirate’s debt crisis because they should have understood the risks.
“These banks are very mature banks, and they have to differentiate between a corporate loan and a sovereign loan,” Alwaleed, 54, said yesterday in an interview on Bloomberg Television. “When things go sour, you can’t have some banks in the West going to Dubai and saying ‘oops’ and crying wolf and saying, ‘You should have guaranteed those loans.’”
Dubai World, the state-controlled investment firm whose assets include a stake in Las Vegas casino company MGM Mirage, is seeking to reschedule payments on about $26 billion of debt. Standard & Poor’s said on Oct. 15 there was a “significant” likelihood that Dubai would help government-related entities such as Dubai World meet debt obligations. Dubai’s government told creditors of Dubai World on Nov. 30 that they should help in a restructuring of the holding company because the government hasn’t guaranteed the debt.
“These banks are very mature banks, and they have to differentiate between a corporate loan and a sovereign loan,” Alwaleed, 54, said yesterday in an interview on Bloomberg Television. “When things go sour, you can’t have some banks in the West going to Dubai and saying ‘oops’ and crying wolf and saying, ‘You should have guaranteed those loans.’”
Dubai World, the state-controlled investment firm whose assets include a stake in Las Vegas casino company MGM Mirage, is seeking to reschedule payments on about $26 billion of debt. Standard & Poor’s said on Oct. 15 there was a “significant” likelihood that Dubai would help government-related entities such as Dubai World meet debt obligations. Dubai’s government told creditors of Dubai World on Nov. 30 that they should help in a restructuring of the holding company because the government hasn’t guaranteed the debt.
Mark Mobius Picks Emaar, ‘Bombed-Out’ U.A.E. Stocks
Emaar Properties PJSC and other developers in the United Arab Emirates are among “bombed-out” stocks that Templeton Asset Management Ltd. favors following a two-day slump in share prices.
“There are many of those properties that are cash-flow rich that are doing quite well; not all the properties are in trouble,” Mark Mobius, who oversees about $25 billion of developing-nation assets as chairman of Templeton Asset, said in a Bloomberg Television interview from Hong Kong. “From a longer-term perspective, you’ve got to look at these really bombed-out sectors.”
The Dubai Financial Market index tumbled 13 percent in the two trading sessions since Dubai World said it’s in talks to restructure debt, while Abu Dhabi’s gauge slumped 12 percent. Emaar, the U.A.E.’s largest developer, plunged 19 percent.
“There are many of those properties that are cash-flow rich that are doing quite well; not all the properties are in trouble,” Mark Mobius, who oversees about $25 billion of developing-nation assets as chairman of Templeton Asset, said in a Bloomberg Television interview from Hong Kong. “From a longer-term perspective, you’ve got to look at these really bombed-out sectors.”
The Dubai Financial Market index tumbled 13 percent in the two trading sessions since Dubai World said it’s in talks to restructure debt, while Abu Dhabi’s gauge slumped 12 percent. Emaar, the U.A.E.’s largest developer, plunged 19 percent.
Gaming regulators closely watching Dubai World debt reorganization
State gaming regulators, who licensed Dubai World last month to share in revenues produced by the soon-to-open Aria’s casino, are closely watching the financial maneuvers of the Persian Gulf emirate’s investment arm as it deals with a potential default of some $60 billion in debt.
If there is a change in control of Dubai World, the entity could again be called forward for licensing by Nevada. Gaming Control Board Chairman Dennis Neilander said the state would have concerns if there is a management shake-up in Dubai World or any of the subsidiaries that were licensed because of the entity’s 50 percent ownership in CityCenter.
“We have staff looking at this situation and they are in touch with representatives of the Dubai World subsidiaries,” Neilander said. “As far as we know, this is just a reorganization of its debt, but that could change.”
If there is a change in control of Dubai World, the entity could again be called forward for licensing by Nevada. Gaming Control Board Chairman Dennis Neilander said the state would have concerns if there is a management shake-up in Dubai World or any of the subsidiaries that were licensed because of the entity’s 50 percent ownership in CityCenter.
“We have staff looking at this situation and they are in touch with representatives of the Dubai World subsidiaries,” Neilander said. “As far as we know, this is just a reorganization of its debt, but that could change.”
Dubai World Holds Key to Property Revival
A move by Dubai's flagship conglomerate to sell some trophy properties could help turn the gears of a commercial real-estate market that has been stalled for more than a year.
Dubai World hasn't said specifically that it plans to unload real estate in order to raise cash to pay its debts. But in a statement detailing debt-restructuring plans early Tuesday, Dubai World said the restructuring process would include "assessment of delevering options, including asset sales." A Dubai World spokesman declined to comment on possible property sales. Dubai World owns high-profile properties around the world, including office buildings in New York and London and luxury hotels across the U.S.
Dubai's problems are coming to light as property investors navigate uncharted waters. Banks and troubled borrowers haven't flooded the market with cheap properties, even though rent and occupancy are still declining around the world, financing remains scarce and defaults are soaring. Lenders, hoping to avoid markdowns on their balance sheets, have largely shied away from foreclosing on overleveraged building owners. That has left investors thirsting for deals.
Dubai World hasn't said specifically that it plans to unload real estate in order to raise cash to pay its debts. But in a statement detailing debt-restructuring plans early Tuesday, Dubai World said the restructuring process would include "assessment of delevering options, including asset sales." A Dubai World spokesman declined to comment on possible property sales. Dubai World owns high-profile properties around the world, including office buildings in New York and London and luxury hotels across the U.S.
Dubai's problems are coming to light as property investors navigate uncharted waters. Banks and troubled borrowers haven't flooded the market with cheap properties, even though rent and occupancy are still declining around the world, financing remains scarce and defaults are soaring. Lenders, hoping to avoid markdowns on their balance sheets, have largely shied away from foreclosing on overleveraged building owners. That has left investors thirsting for deals.
Euro ministers voice hope Dubai fallout limited
European finance ministers said on Tuesday they saw only limited fallout from Dubai's debt troubles but that it showed the global financial crisis had yet to end.
Ministers from the euro currency zone sounded cautiously confident about potential problems beyond the Gulf as financial markets recouped some of the losses incurred after Dubai World holding company said last week it could not pay its debts.
Swedish Finance Minister Anders Borg, arriving for talks in Brussels on reducing deficits and tightening financial regulation following recession in Europe, said European bank exposure appeared so far to be "reasonable".
Ministers from the euro currency zone sounded cautiously confident about potential problems beyond the Gulf as financial markets recouped some of the losses incurred after Dubai World holding company said last week it could not pay its debts.
Swedish Finance Minister Anders Borg, arriving for talks in Brussels on reducing deficits and tightening financial regulation following recession in Europe, said European bank exposure appeared so far to be "reasonable".
Dubai contagion hits Qatar bourse
It was a red Tuesday for the Qatari bourse yesterday as stocks tumbled a massive 8.3 percent with the electronic board on the trading floor a streaming red with no glint of green in sight.
The loss to investors at Qatar Exchange on a single trading day was a staggering QR27.34bn ($7.49bn).
The exchange’s index shed more than 595 points at the close of trading to end up at 6,598.
The loss to investors at Qatar Exchange on a single trading day was a staggering QR27.34bn ($7.49bn).
The exchange’s index shed more than 595 points at the close of trading to end up at 6,598.
Carlyle Group's Mid-East woes
The Carlyle Group had high hopes when it made its foray into the Mid-East. But the dream of tapping the region as a major source of funding has died. As of now, the private equity giant can only be thankful that the Dubai World fiasco is deflecting attention.
The Financial Times reports that a prominent Kuwaiti firm has sued Carlyle locally, in the wake of the blow-up of the firm's public debt fund, which collapsed in early 2008. No surprise the fund invested in mortgage-backed securities. The decision to sue by National Industries Group, which invested $50 million in the fund, followed "a stormy meeting in Kuwait involving Carlyle co-founder David Rubenstein and Saad Al Saad, the head of NIG and head of one of Kuwait's wealthiest families.
"The meeting was abruptly terminated after a young Carlyle staffer told the NIG executives to lower their voices," the FT reported. Rubenstein wanted to apologize and offer to cut fees on any additional investment, an offer that did little.
The Financial Times reports that a prominent Kuwaiti firm has sued Carlyle locally, in the wake of the blow-up of the firm's public debt fund, which collapsed in early 2008. No surprise the fund invested in mortgage-backed securities. The decision to sue by National Industries Group, which invested $50 million in the fund, followed "a stormy meeting in Kuwait involving Carlyle co-founder David Rubenstein and Saad Al Saad, the head of NIG and head of one of Kuwait's wealthiest families.
"The meeting was abruptly terminated after a young Carlyle staffer told the NIG executives to lower their voices," the FT reported. Rubenstein wanted to apologize and offer to cut fees on any additional investment, an offer that did little.
Long-term effect on Bahrain is ruled out
Bahrain is unlikely to suffer any long-term effects from the financial restructuring at Dubai World.
The Bahrain stock market is likely to come under pressure and fall when it re-opens after the Eid break today, taking its lead from falls in other regional markets over the past few days, according to Securities & Investment Company (SICO) head of asset management Shakeel Sarwar.
"I think we have seen the worst of the sell offs in the regional markets," he said.
The Bahrain stock market is likely to come under pressure and fall when it re-opens after the Eid break today, taking its lead from falls in other regional markets over the past few days, according to Securities & Investment Company (SICO) head of asset management Shakeel Sarwar.
"I think we have seen the worst of the sell offs in the regional markets," he said.
Dubai Crisis Could Lead to Greater Centralization of UAE and Its Financial Markets
Abu Dhabi’s support for Dubai is selective and conditional, as revealed by a senior official’s comment on November 28 that the emirate will support Dubai on “a case by case basis,” choosing which companies to assist. Speculation about trade-offs is shifting from secret buyout arrangements to a power shift within the UAE federal structure to Abu Dhabi, OxAn says.
Naturally, the question has been raised as to what kind of favour Abu Dhabi could expect in return.
OxAn suggests payoffs for Abu Dhabi’s bailout might be on a political level rather than commercial via, for example, a stake in Emirates Airlines:....
Naturally, the question has been raised as to what kind of favour Abu Dhabi could expect in return.
OxAn suggests payoffs for Abu Dhabi’s bailout might be on a political level rather than commercial via, for example, a stake in Emirates Airlines:....
CHART OF THE DAY: DUBUY
Stocks have now recovered all of their losses from last week’s Dubai scare. HSBC’s Arjuna Mahendran was dead right when he referred to Dubai as a “blip” and said the markets were providing a buying opportunity.
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.
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.
Indian IPOs set for Dubai storm
India’s strong run of share offerings in 2009 is expected to weather the shock from the Dubai crisis, bankers and analysts say.
The country’s initial public offering deal pipeline includes a planned $796m listing by the Dubai-Indian property joint venture, Emaar MGF Land, but analysts believe that even this deal will escape the fallout from the crisis unfolding across the Arabian Sea from India.
Tarun Kataria, chief executive of global banking and markets at HSBC India, said: “The Dubai situation notwithstanding, the outlook for India remains positive.
The country’s initial public offering deal pipeline includes a planned $796m listing by the Dubai-Indian property joint venture, Emaar MGF Land, but analysts believe that even this deal will escape the fallout from the crisis unfolding across the Arabian Sea from India.
Tarun Kataria, chief executive of global banking and markets at HSBC India, said: “The Dubai situation notwithstanding, the outlook for India remains positive.
India put at risk from Gulf tremors
The bad news came by text message. Indian workers from the Uttar Pradesh town of Meerut, home for the Muslim festival of Eid at the weekend, were told by SMS that their jobs in a Dubai tile factory were gone, their visas cancelled.
Many more of the 4.5m Indian workers in the Gulf, almost half of whom find employment in the United Arab Emirates, will now fear for their livelihoods after the near default of Dubai’s biggest state conglomerate, Dubai World.
India is one of the most vulnerable countries to a collapse in Dubai. The emirate and neighbouring Abu Dhabi have grown over the past 30 years on the back of south Asian labour and expertise.
Many more of the 4.5m Indian workers in the Gulf, almost half of whom find employment in the United Arab Emirates, will now fear for their livelihoods after the near default of Dubai’s biggest state conglomerate, Dubai World.
India is one of the most vulnerable countries to a collapse in Dubai. The emirate and neighbouring Abu Dhabi have grown over the past 30 years on the back of south Asian labour and expertise.
Bank creditors join forces on response
Some of the world’s biggest banks have joined disgruntled bondholders in organising their response to Dubai World’s request for a restructuring of $26bn in debts.
One group of bank creditors – HSBC, Standard Chartered, Royal Bank of Scotland, Lloyds and local banks – have formed a steering committee, according to a person familiar with the matter, and are expecting to meet Dubai World representatives on Sunday or Monday.
Since the government’s department of finance last week took over the direct running of Dubai World and shocked the financial community by calling for a debt standstill until May, the focus has been on the delay in the repayment of the $4bn sukuk of Dubai World’s developer Nakheel.
One group of bank creditors – HSBC, Standard Chartered, Royal Bank of Scotland, Lloyds and local banks – have formed a steering committee, according to a person familiar with the matter, and are expecting to meet Dubai World representatives on Sunday or Monday.
Since the government’s department of finance last week took over the direct running of Dubai World and shocked the financial community by calling for a debt standstill until May, the focus has been on the delay in the repayment of the $4bn sukuk of Dubai World’s developer Nakheel.
Dubai Who’s in and who’s out
Mohammed al-Shaibani, director-general of ruler Sheikh Mohammed bin Rashid al-Maktoum’s court
Heads Investment Corporation of Dubai, which has stakes in government companies and oversees both the emirate’s debt and support for state-linked businesses. Following his return from the ruler’s London office to his court in Dubai, once again the prime seat of sheikhly power, he masterminded last year’s anti-corruption campaign.
Ahmed al-Tayer, Governor of Dubai International Financial Centre
As a member of one of the city’s oldest merchant families, his ascendance could signal a return to a more conservative financial approach. The former finance minister took over at DIFC following a purge of Dubai’s young leaders. Also chairs Emirates NBD after leading the forced merger of Emirates Bank with the National Bank of Dubai.
Abdulrahman al-Saleh, director-general of department of finance
The former senior customs executive took over at the department in May and now finds himself tasked with smoothing Dubai’s passage through one of its most severe financial crises.
Sultan bin Sulayem, Chairman of Dubai World
Son of the closest adviser to the ruler’s father, he made his name turning Dubai Ports Authority into a world-beater. Also launched Nakheel, property arm of the state-owned holding company Dubai World, and oversaw construction of one of the emirate’s man-made islands as projects grew more grandiose ahead of last year’s crash.
Mohammed al-Gergawi, Dubai Holding chairman and UAE minister of cabinet affairs
Became a close adviser to the ruler a decade ago. Made his name launching the emirate’s internet and media business clusters, then building up Dubai Holding’s interests. Its crisis-hit property and investments arms have been forced to restructure, however, and some senior executives have been investigated over corruption allegations.
Mohammed Alabbar, chairman of Emaar Properties
A leading figure in the property boom of this decade. Revived the emirate’s Asian holdings after a real estate downturn in the late 1980s before setting up the department of economic development in 1992. But his remit is narrower now, focusing on guiding the region’s largest property firm through the crash.
Heads Investment Corporation of Dubai, which has stakes in government companies and oversees both the emirate’s debt and support for state-linked businesses. Following his return from the ruler’s London office to his court in Dubai, once again the prime seat of sheikhly power, he masterminded last year’s anti-corruption campaign.
Ahmed al-Tayer, Governor of Dubai International Financial Centre
As a member of one of the city’s oldest merchant families, his ascendance could signal a return to a more conservative financial approach. The former finance minister took over at DIFC following a purge of Dubai’s young leaders. Also chairs Emirates NBD after leading the forced merger of Emirates Bank with the National Bank of Dubai.
Abdulrahman al-Saleh, director-general of department of finance
The former senior customs executive took over at the department in May and now finds himself tasked with smoothing Dubai’s passage through one of its most severe financial crises.
Sultan bin Sulayem, Chairman of Dubai World
Son of the closest adviser to the ruler’s father, he made his name turning Dubai Ports Authority into a world-beater. Also launched Nakheel, property arm of the state-owned holding company Dubai World, and oversaw construction of one of the emirate’s man-made islands as projects grew more grandiose ahead of last year’s crash.
Mohammed al-Gergawi, Dubai Holding chairman and UAE minister of cabinet affairs
Became a close adviser to the ruler a decade ago. Made his name launching the emirate’s internet and media business clusters, then building up Dubai Holding’s interests. Its crisis-hit property and investments arms have been forced to restructure, however, and some senior executives have been investigated over corruption allegations.
Mohammed Alabbar, chairman of Emaar Properties
A leading figure in the property boom of this decade. Revived the emirate’s Asian holdings after a real estate downturn in the late 1980s before setting up the department of economic development in 1992. But his remit is narrower now, focusing on guiding the region’s largest property firm through the crash.
Stopped in its tracks
Expatriates are back to fretting about their jobs and the fate of property prices; locals are venting their anger at top officials who overborrowed to build increasingly outlandish projects. All residents are stunned at how a famed model of brash, extravagant growth has been transformed from a beacon of hope for an entire region into a case study in crisis management.
Welcome to Dubai. The skyscraper-studded Gulf city is a changed and chastened place since last week, when neither its own government nor that of Abu Dhabi, its oil-rich partner in the United Arab Emirates, showed willingness to stand behind the $59bn (£36bn, €39bn) in debts amassed by Dubai World, a flagship investment company that many investors had assumed enjoyed state backing.
In coffee shops and in the majlis meeting rooms of Dubai’s villas, locals are venting their ire at the ruler’s top lieutenants who, while building a modern city, also weighed it down with a debt burden estimated on Tuesday by Moody’s at $100bn.
Open economies need open states
“This company is independent of the government.” Sheikh Mohammed bin Rashid al-Maktoum, the ruler of Dubai, tetchily confirmed on Tuesday that his emirate will not guarantee the debts of Dubai World, the publicly owned local conglomerate now struggling with $59bn of debt.
The hereditary ruler of the city-state also brushed aside concerns that the announcement last week that Dubai World wanted to delay the repayment of some of its debt indicated a greater crisis for Dubai itself. Sheikh Mohammed told reporters that international investors “do not understand anything”.
That may be true. The cost of insuring against a default by Dubai – now $56,931 to insure a million dollars of the emirate’s debt – could be too high. Investors, however, cannot be blamed for not understanding the relationships between Dubai’s institutions that are, whether intentionally or not, kept blurry and ambiguous.
The hereditary ruler of the city-state also brushed aside concerns that the announcement last week that Dubai World wanted to delay the repayment of some of its debt indicated a greater crisis for Dubai itself. Sheikh Mohammed told reporters that international investors “do not understand anything”.
That may be true. The cost of insuring against a default by Dubai – now $56,931 to insure a million dollars of the emirate’s debt – could be too high. Investors, however, cannot be blamed for not understanding the relationships between Dubai’s institutions that are, whether intentionally or not, kept blurry and ambiguous.
Past is no clear guide to risk of contagion
Investors and economists nervously watching events unfold in Dubai have been seeking the guidance of precedent. Could this be Thailand in 1997, when an apparently isolated currency devaluation ended up engulfing a region and a global asset class in crisis? Could it even be Creditanstalt in 1931, when the failure of an Austrian bank helped to turn a stock market crash into the Great Depression?
As of Tuesday, market participants were coalescing around answers of No and No. True, there are some parallels with the 1997-98 Asian crisis, and it could be months before the true impact is clear. But the size and nature of the Dubai problem suggest that contagion can be contained.
“Last week it looked briefly as though this was a regionwide or even global issue,” said Gerard Lyons, chief economist at Standard Chartered. “Now it looks like a local one.”
Credit markets left with unpleasant aftertaste
So was it all a sandstorm in a teacup? That is the question some traders are quietly asking right now. Last week, global financial markets were tipped into panic on the news that a bond issued by Nakheel, the property group linked to Dubai World, the quasi-government entity, might be pushed into effective default.
But this week markets partially recovered after the authorities in Abu Dhabi indicated that they were prepared to support banks in the United Arab Emirates – a move that prompted hopes this largesse may yet be used to bail out a clutch of Dubai entities too.
But even if Abu Dhabi did eventually rescue entities such as Dubai World, which remains a big “if”, the episode is likely to leave an unpleasant aftertaste for global credit markets. If nothing else, the Dubai saga has reminded investors how uncertain creditor rights can be, even in countries with a veneer of the capitalist ethos. This uncertainty could have a corrosive effect on global market confidence in the coming months, particularly given the sheer scale of deleveraging that needs to take place around the world – including Dubai.
But this week markets partially recovered after the authorities in Abu Dhabi indicated that they were prepared to support banks in the United Arab Emirates – a move that prompted hopes this largesse may yet be used to bail out a clutch of Dubai entities too.
But even if Abu Dhabi did eventually rescue entities such as Dubai World, which remains a big “if”, the episode is likely to leave an unpleasant aftertaste for global credit markets. If nothing else, the Dubai saga has reminded investors how uncertain creditor rights can be, even in countries with a veneer of the capitalist ethos. This uncertainty could have a corrosive effect on global market confidence in the coming months, particularly given the sheer scale of deleveraging that needs to take place around the world – including Dubai.