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Dubai struggles to allay debt fears
Web posted at: 11/27/2009 0:33:21
Source ::: Reuters
Dubai's stock market pictured yesterday, which was closed on the first
day of the long Eid Al Adha holiday.
DUBAI/LONDON: Dubai struggled to ease fears of debt default yesterday after its
move to delay repayments at two flagship firms shook confidence in the Middle
East as a centre for investment and a source of capital.
Dubai's debt problems, a hangover from a property boom that produced the
world's tallest building, have shaken trust among Western investors who turned
to the Gulf region for help during the global financial crisis.
The emirate said on Wednesday it would ask creditors of Dubai World, the
conglomerate behind its rapid expansion, and Nakheel, builder of its
palm-shaped islands, to agree a standstill on billions of dollars of debt as a
first step towards restructuring.
Dubai yesterday tried to revive some confidence by saying its profitable DP
World, which operates over 40 ports around the world, would not be involved in
the restructuring. DP World is majority owned by Dubai World, but also has
shares listed on NASDAQDubai.
"It might be a move to distinguish the solvent from less solvent companies in
an attempt to shift the weight away from the less exposed entities," said John
Sfakianakis, chief economist at Saudi Fransi bank.
But European banks shares, which had picked up in recent months on hopes that
the worst of a global economic crisis was over, fell to lows not seen since May
on fears of their exposure to Dubai's debt.
Shares in companies in which Gulf investors own big stakes, including the
London Stock Exchange, UK grocer J Sainsbury and German carmakers Porsche and
Daimler, also fell sharply on concerns the holdings would be cut to meet
obligations at home.
Exposure to Dubai World could be as high as $12bn in syndicated and bilateral
loans, including existing loans for Nakheel and Istithmar, the investment arm
of the Dubai government, banking sources told Thomson Reuters LPC.
International banks are seeking to clarify their position as they formulate
their response to the standstill request and are assessing the implications for
lending to Dubai and the Gulf.
"This is very serious and will have implications across the region," a senior
banker said.
In a sign that Dubai's problems could hurt global fundraising efforts for its
neighbours, Saudi-backed Gulf International Bank pulled a bond sale due to
priced this week, sources said.
GIB had been expecting to raise at least $500m but Dubai's move will likely
lead to a risk reassessment of debt issued by the region's sovereign-linked
firms.
Wednesday's announcement also sent the cost of insuring Dubai's debt against
default soaring and bond prices tumbling.
Dubai World, whose slogan is "The sun never sets on Dubai World" has $59bn of
liabilities, its subsidiary Nakheel said in August, a large proportion of
Dubai's total debt of $80bn.
Dubai's credit defaults swaps are being quoted as high as 500-550 bps, some
traders said, while the cost of insuring Qatari, Abu Dhabi and Bahrain debt has
also surged.
Analysts downplayed the fallout for the wider region, however, pointing out
that Dubai funded its growth through loans whereas its neighbours are mostly
major oil and gas exporters.
"I would not rush into talking about contagion. Anything from Abu Dhabi or
Qatar is backed by serious money. Dubai is a lot more leveraged," said Youssef
Affany, a relationship manager at Citi who specialises in the region.
Analysts expect financial support from Abu Dhabi, a neighbouring member of the
United Arab Emirates and home to most of the country's oil, to keep Dubai
afloat.
But Dubai will most probably have to abandon an economic model that focused on
heavy real estate investment, borrowing and inflows of foreign capital.
Earlier this year, Dubai headed off investor concerns that it would default on
its debt by launching a $20bn bond programme in which the Central Bank of the
UAE, the world's third largest oil exporter, bought the first $10bn slice.
Dubai announced on Wednesday it had raised a further $5bn as part of that
programme, placing the debt with two Abu Dhabi-controlled banks.
But the move raised questions over why Dubai had not raised the entire $10bn
tranche it had planned to sell on the international market.
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Dubai debt crisis hits European banks hard
Web posted at: 11/27/2009 1:12:16
Source ::: REUTERS
LONDON: European banks took their biggest tumble for six months yesterday
on concern about potential exposure to debt problems in Dubai, and firms where
Middle Eastern investors own big stakes were also under pressure.
Dubai, where extravagant building projects have been largely put on hold
since the global financial crisis, has said it would ask creditors at its
flagship firms Dubai World and property developer Nakheel to delay repayment on
billions of dollars of debt.
By 1650 GMT yesterday the DJ Stoxx European bank index was down 5 percent
at 218.1 points, its steepest one-day drop since mid-May.
Companies with significant Middle Eastern shareholders, such as the
London Stock Exchange, were also hit by concern the holdings could be cut to
meet obligations at home.
"The worry is about the exposure of the banks given the rapid pace of
expansion in Dubai and around the area in the last few years," said one bank
analyst, who asked not to be named.
Europe's biggest bank HSBC fell 4.8 percent, Royal Bank of Scotland and
ING both tumbled over 7 percent and Lloyds Banking Group lost 6 percent.
They were among nine banks who were bookrunners on an outstanding $5.5
billion syndicate loan to Dubai World in June 2008, according to Thomson
Reuters LPC data. Banks may have sold down their loan exposure in the secondary
market, and one analyst estimated that bookrunners typically retain only about
10-15 percent of a loan or bonds.
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