Dubai World Crisis Brings Down the World
Late last week, the global stock markets plummeted by more than 3% within a single day due to the fear of a debt default of $60 billion from Dubai World, the government investment company behind some of the emirate’s most ambitious projects.
Dubai World was seeking to delay repayment on a tranche of its debt. The company is under heavy debts tallying up to tens of billions that were used to fund the real-estate projects from the Middle East to Las Vegas.
The company has $60 billion of liabilities from its various companies including Nakheel, the property firm behind the Palm Jumeirah, the world’s biggest artificial island, and the Nakheel Tower, the world’s tallest building at 1km high.
According to investors, an Islamic bond, sukuk, issued by one of Dubai world’s subsidiaries, fell to 57 cents on Friday from 110 cents on Wednesday.
There were a lot of negative reports from the media stating that the Dubai debt crisis may lead to a financial contagion, similar to the 1997 Thailand financial crisis.
Even though there have been some pronouncements that Global Economic Recovery would not be affected by Dubai’s woes, that may be just a wishful thinking.
The extent of Dubai’s problems has yet to be clearly assessed and it was still too early to determine whether the crisis was more of a localized issue affecting only the Middle East region or it would spread to other parts of the world.
Jim Rogers on Dubai debt fears
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It is reported that Malaysia Islamic Banking was not adversely effected as it has limited exposure to the Sheikdom’s debt.
I hope the financial crisis in Dubai would not have severe impact on the global economic recovery after a year of recession following the US subprime crisis.
What do You Think?
Dubai Raises Concerns About Emerging Markets
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Official: UAE can overcome Dubai debt challenges
DUBAI, United Arab Emirates — Top Emirates officials rallied together Wednesday, extolling the strength of the country’s economy in a show of bravado that ignored the debt woes facing the one-time Arab boomtown of Dubai.
In speeches on the national holiday marking the unification 38 years ago of seven small desert fiefdoms into the United Arab Emirates, they stressed the country’s push to grow and diversify its economy to face any adversity.
Their speeches did not mention the crippling $60 billion debt owed by Dubai World, the city state-owned conglomerate with interests ranging from ports to luxury retailer Barney’s New York that have powered the emirate’s growth.
Dubai World shocked global markets last week by announcing it would ask creditors for at least a six-month reprieve in payments on $26 billion of its debt as it undergoes a restructuring process.
The announcement sent ripples of fear throughout the world as investors worried both about Dubai World’s possible default and that it was an indication of broader global problems that could undermine the world’s shaky recovery from the worst recession in decades.
Dubai had built itself up from a desert hamlet to a Middle Eastern Disneyland on borrowed cash. Cheap credit over the past few years provided developers with the money they needed for soaring skyscrapers and luxury residential compounds on man-made islands.
The global meltdown dried up that liquidity and property prices collapsed as the bills came due. Fears about Dubai’s inability to pay sent global markets tumbling sharply last week and hammered ones in the Gulf region earlier this week, with the UAE’s main bourses posting losses as high as 8 percent in one day.
But on the national holiday, UAE officials were upbeat.
"There is no doubt that the drastic changes and challenges which the global economy is facing prove that the (UAE) economy is strong, built on a solid foundation able to withstand crisis, no matter how difficult," said Economy Minister Sultan Al Mansouri.
"We reaffirm the strength of the economy, and its ability to overcome upcoming challenges," he added, according to the official news agency, WAM.
Nasser al-Sweidi, chief of the Abu Dhabi Economic Department, reaffirmed the country’s pride in the "wise political leadership" that has steered the economy toward diversification and development of non-oil sectors.
"The economy was able to maintain its strength and steadfastness throughout 2009 amid the international financial and economic crisis," al-Sweidi said.
However, authorities have fueled investor concerns by saying Dubai World’s debt crunch was its own — and not something for which the Dubai government was responsible.
The uncertainty over how Dubai World and Dubai itself will deal with the debt sent global markets spiraling late last week, while the two biggest UAE bourses and others in the Gulf Arab region recorded sharp drops starting Monday, the first day of business after an extended Islamic holiday.
Dubai World recently said it launched debt restructuring talks with creditors on $26 billion of its dues. The company said the restructuring would include about $6 billion in Islamic bonds issued by its real estate arm, Nakheel, the company behind Dubai’s iconic, palm-shaped artificial islands. About $3.5 billion of the bonds come due on Dec. 14, and Nakheel was viewed as the litmus test for how the company would deal with its debt woes.
It did not address the broader issue of how it would meet its entire crushing debt burden.
Excluded from the process were debts from Infinity World Holding, Istithmar World and Ports & Free Zone World. That subsidiary includes ports and terminal operator DP World, Economic Zones World, P&O Ferries and Jebel Ali Free Zone, which on Tuesday said it paid a roughly $2 billion Islamic bond on time.
Among other unanswered questions were whether and with how much Abu Dhabi, the oil-rich seat of the UAE’s federal government, would step in with some sort of bailout.
Analysts have said the government would likely not allow a major default, but that any steps taken by Abu Dhabi would come at a price for Dubai, whose meteoric and glitzy rise to fame far overshadowed Abu Dhabi’s more conservative, oil revenue driven development push.
from:google.com/hostednews/ap/article/ALeqM5jgIwsGJtixo-F6a2j5e8hebIbaEwD9CB7GA00
About the Dubai Crisis
There is cause for concern in Abu Dhabi’s reaction to the crisis that is unfolding one step at a time in Dubai. Indeed, it has been ascribed to officials in the UAE government that the state will not provide complete coverage of the debts of companies in difficulty in Dubai, but will rather “look into each case on its own”.
From a financial point of view, Abu Dhabi is approaching the problem of the delay in settling Dubai’s debts, the latter having asked for an additional six months to pay the interests on its massive loans, with a kind of professional caution, if one may say, at a time when loaning parties had based their expectations on “political” intervention on the part of the government of the United Arab Emirates, or on that of the Emirate of Abu Dhabi, to face any financial difficulty that might arise before Dubai, which had kept the world engrossed with its extravagant projects and excessive spending. Yet the past few days have shown that Abu Dhabi has a different opinion.
Perhaps it is not too late to remind of the dangers that Dubai’s economy has ignored for around two decades. Indeed, despite its success at occupying a prominent position in trade mediation at both the regional and international levels, the Emirate has been a terrible example of economic risk-taking, in terms of the weak bases of the “real” economy, which is supposed to provide support to trade and real estate projects. Dubai is not the only one in the Gulf to follow such a trend, but comparing what countries in which oil production has dwindled have adopted over the past decade with what took place in Dubai, which has never possessed large oil reserves, undoubtedly shows that the path taken by the Emirate has been greatly excessive, in terms of being linked to international climates and trends that have not proved effective in overcoming previous crises.
Returning to Abu Dhabi’s reaction, one must say that fears have arisen that the reasons behind the “caution” in helping Dubai with its difficulties are not limited to economic and financial ones.
Furthermore, the recent round of antagonism between Algeria and Egypt justifies expressing fears of internal Arab relations, which are unwell and lying beneath a thin coat of deceptive appearances, waiting for a football game or a financial crisis, becoming an additional ailment afflicting the economy as well as financial and real estate institutions.
It would perhaps be fair to say that the problem in Dubai, the size of which began to take shape last week (although its first signs had appeared since the eruption of the global financial crisis in September 2008), does not concern the UAE or the Gulf states alone. A survey of the names of the parties that will suffer grave losses in the United States and Europe, up to the negative repercussions on a number of Arab countries, indicates two things: first, that the failure of risky economic ventures does not harm only parties directly involved, but rather reaches beyond them a long list of harmed parties spread across the reaches of the world; and second, that curbing the whims of colossal projects built on the quicksand of individual “vision” lacking accurate scientific study has become the responsibility of local and international economic and political bodies.
Such a view drives one to wonder about the mechanisms of monitoring, calling to account and expanding the bases of good governance in our Arab countries. Needless to say that such an approach is connected to political decision-making on the one hand, and, on the other, to a desire not expressed by our societies to avoid additional risky ventures of different kinds.
from:daralhayat.com/portalarticlendah/82126
Dubai Inc: Assessing the Fallout
Moody’s assesment of regional and international implications of the Dubai World restructuring.
KUALA LUMPUR: On Nov 25, 2009, the government of Dubai announced that it was restructuring the liabilities of Dubai World and requesting a standstill on the financings of Dubai World and its troubled real estate subsidiary, Nakheel. Both the announcement itself and its timing took markets by surprise and has thrown credit markets into turmoil.
Although concerns about Dubai’s rising debt burden had been well publicized, and we ourselves had repeatedly argued that the government’s decisions on Nakheel will constitute the litmus test for ratings in Dubai, the premises of our assumptions have shifted.
Our ratings were first downgraded – some by several notches – earlier last month when the government disclosed greater conditionality of support in its most recent bond prospectus, including the requirement for government-related issuers (GRIs) to demonstrate sustainable business plans and realistic prospects of fulfilling their payment obligations. The government had until then regularly expressed its support for its strategic enterprises.
This is exacerbated by the fact that – until recently – the Dubai government has been providing general assurances of support throughout the year, and only recently made use of much-improved sentiment by issuing a well-received sovereign bond.
As we do not rate Dubai World or Nakheel, we do not have preferential insight into the group. We therefore need to make some fairly crude assumptions on the basis of publicly available information.
We do, however, rate DP World and Jebel Ali Free Zone, which are both subsidiaries of Dubai World.
Unfortunately, the nature of Wednesday’s announcement leaves much room for interpretation. We know that DP World – arguably the crown jewel of the group – has been excluded from the restructuring. The same applies to Jebel Ali Free Zone.
Both entities have approximately USD10 billion in debt, which will not be subject to the standstill. Indeed, businesses such as DP World, Jebel Ali Free Zone and possibly DryDocks and Dubai Multi Commodity Centre are likely to represent the bulk of performing assets within the group.
The ca. USD5.5 billion situated directly at Dubai World and the USD8 billion of debt at Nakheel (as at year-end 2008) are therefore likely to be part of the restructuring.
Furthermore, in our view, all entities whose debt is not supported by long-term viable cash flows are likely to be affected. This could, in our opinion, also include the likes of property company Limitless, which has known debt of USD2.2 billion.
We are therefore currently assuming a total debt restructuring amount of approximately USD 25 billion, which has since been confirmed by Dubai World at USD26 billion. This compares against what we believe to be total government and government-related debt in Dubai of around USD100 billion, and also – which is often ignored – a substantial asset base, though little in liquid form.
Why has it happened?
The reason why the government has gone down this road can only be speculated on at this stage.
Ultimately, the government has demonstrated a willingness to potentially dismantle what was one of Dubai’s largest government conglomerates – possibly in reflection of the greater severity of the situation at Dubai World; possibly also in response to a greater determination by Abu Dhabi to take a more selective stance towards the entities it is willing to bail out in Dubai.
We would be astonished if a decision as significant as this one had been made without the prior knowledge of Abu Dhabi. A collaborative decision would thus represent a clear attempt by Abu Dhabi to limit its own contingent liabilities.
Whilst Abu Dhabi continues to provide new funding to Dubai, it also demonstrates that it was not willing to provide blank cheques to all of Dubai’s struggling entities.
The question of viability therefore becomes crucial to the decision-making process. Whilst we have seen numerous companies obtain financial support throughout 2009, all of these were arguably viable businesses.
The same could not be said of Nakheel, nor indeed for many of the other speculative undertakings grouped under the Dubai World umbrella.
At this point, we still do not know whether the debt standstill will lead to a gradual winding-up of the company, including potential fire-sales of assets; or whether different restructuring options are being considered, including a possible timely repayment of the Sukuk.
Given the highly strategic nature of some of the group’s assets, including the port operator, we would be surprised if we saw such businesses being sold cheaply into international hands.
However, given the newsflow since last Wednesday, we believe it can now be safely assumed that the government will stick to its decision of sharing the burden of this process with Dubai World’s creditors.
Rating implications.
Corporates: A Paradigm Shift
The most visible consequence of this paradigm shift has been the ratings downgrade of all six GRIs in Dubai,1 two of which have remained investment-grade, while the remainder have been lowered to non-investment grade. All ratings are now either at or fairly close to their stand-alone credit profiles, reflecting substantially reduced government support assumptions in our final ratings.
While much remains to be confirmed and clarified, the government’s willingness to restructure an entity as visible and high-profile as Dubai World and to allow a potential default substantially changes long-held market assumptions regarding implicit government support of local credits.
Businesses that continue to demonstrate solid business models, such as DP World and DEWA, remain investment grade and are likely to be those that will be able to attract funding, once the dust settles.
Other, weaker and more speculative undertakings that rely more heavily on the materialization of future cash flows have fallen to non-investment grade. It is therefore fair to assume that – with some few exceptions – Dubai’s corporate landscape is now effectively a high-yield market.
Incidentally, all the six Dubai GRIs that are rated by Moody’s only have moderate debt maturities over the coming 12 months and are therefore far less exposed to a renewed potential liquidity squeeze for Dubai corporates.
The degree to which Dubai is able to fund its existing growth aspirations via its corporate sector going forward must now be considered to be in jeopardy. This in turn raises the question as to what Abu Dhabi’s involvement will be in Dubai’s future expansion. In our view, the co-ordination and approval of expansionary projects will, going forward, increasingly be decided in Abu Dhabi or at federal level.
The prospect for some asset transfers from Dubai to Abu Dhabi is now high. At the same time, Abu Dhabi will need to be much more elaborate in publicly declaring its support for companies and projects in Dubai for investors to become comfortable.
Will there be contagion? The markets now seem to believe that this is largely a Dubai-specific issue, given that spreads in Abu Dhabi and Qatar have widened by a mere 50 basis points.
We remain less assured.
Abu Dhabi will inevitably need to play a more prominent role in Dubai’s finances and economic growth model. Furthermore, this precedent of potential default needs to be interpreted in a broader context, given the growing number of debt-laden GRIs without sovereign guarantees elsewhere in the Gulf.
Sovereigns: Local consequences, but will focus minds globally
Consequences for Dubai
We do not currently have a published sovereign rating on Dubai, but we believe that the short-term impact of recent events could be quite severe for the city-state. Dubai World is one of the largest government-owned conglomerates in Dubai with tentacles that reach into almost every sector of the economy.
It is therefore likely that exposure to Dubai World and its restructured entities among local banks and contractors is significant, that employment levels and confidence will suffer and that local banks will become even more reluctant to lend into the domestic economy. The Dubai government is rather small in relation to the size of the economy and has limited resources at its disposal.
This constrains its ability to provide fiscal stimulus to offset shocks to the private sector. As Dubai’s resilience has already been weakened by the effects of the global economic crisis, it is likely that the tentative economic recovery seen over the past six months will be reversed by recent events.
Over the medium term, Dubai’s prospects depend on several factors: the extent of restructuring that takes place in Dubai Inc, potentially beyond that already announced; the degree to which capital markets access remains restricted for Dubai based entities; the ability and willingness of local banks to lend into the economy to compensate for reduced appetite among foreign creditors; and trends in the global economy.
Over the past two years, Dubai’s economy has displayed a strong correlation with global developments. Overall though, we believe that Dubai’s recovery from recent events is likely to be drawn out and painful in the absence of substantial and sustained direct fiscal support from Abu Dhabi.
Over the longer term, a key challenge for Dubai will be the preservation of its status as the leading regional hub for trade, tourism, and finance.
Currently, Dubai’s infrastructure is superior to that of competing states in the region, largely because of its debt-financed investment boom over the past years. Given that Dubai has far fewer hydrocarbon resources than its neighbours and a narrow fiscal revenue base, it faces a structural disadvantage in terms of its ability to fund future public investment.
If capital markets access for Dubai remains more restricted and more expensive than for its neighbours, it is likely that the "infrastructure gap" between Dubai and competing regional states with larger hydrocarbon resources will gradually close.
Consequences for the UAE and Abu Dhabi
The recently announced restructuring of Dubai World’s liabilities is unlikely to threaten the Aa2 sovereign ratings for the government of Abu Dhabi and the federal government of the United Arab Emirates (UAE). Both of these ratings therefore continue to have a stable outlook.
The adverse impact of the Dubai World crisis on the non-hydrocarbon sectors of the domestic economy could potentially be severe, especially in Dubai. However, overall macro-economic stability is protected by the country’s very strong net external creditor position that is bolstered by Abu Dhabi’s accumulated oil wealth.
Significantly, the announced restructuring of Dubai World has shown that there is a limit to the willingness of the Abu Dhabi and federal governments to support indebted state-owned companies in other emirates. The Dubai World crisis has therefore effectively reduced the government’s contingent liabilities by highlighting the limits of government support for indebted state-owned companies.
However, the Dubai World episode has underlined some of the institutional shortcomings that we have previously highlighted. In particular, we note the continued limited availability of information regarding the consolidated finances and debt burdens of state-owned enterprises in the country and the degree to which they could impact the banking system and public finances. Meanwhile, the opacity of decision-making at the highest levels of government reduces visibility on economic policy objectives.
The main factor underpinning the UAE’s investment-grade sovereign rating is its robust external position. This is largely due to the ample stock of offshore financial assets held by the Abu Dhabi Investment Authority (ADIA), the state-owned entity responsible for investing the bulk of Abu Dhabi’s oil-driven fiscal surpluses.
Also, the fiscal position of the UAE, and Abu Dhabi in particular, remains healthy. The UAE’s consolidated fiscal surplus has averaged at around 20% of GDP over the past five years and is likely to post a small surplus in 2009 despite a sharp fall in oil export revenues and surging expenditure at the Abu Dhabi and federal levels.
The fiscal firepower of Abu Dhabi, and by extension that of the federal government, is backed by the reserves of ADIA and other state-owned entities in Abu Dhabi, including the Abu Dhabi Investment Council and the state-owned oil company ADNOC.
So, overall, the country’s strong consolidated external and fiscal positions will help it to weather the inevitable shock to the non-hydrocarbon sector.
Global consequences: The first casualty of upcoming government exit strategies?
It is hard to see why the events taking place in Dubai should trigger a global sovereign crisis: the scale of the problem is very small, quite idiosyncratic (this is public sector debt and not sovereign debt) and even within the country itself (the UAE) there are plenty of liquid foreign assets to absorb all the losses and more if so desired.
However, the absence of support for a public-owned company does strike a chord after the massive socialization of risks that has taken place over the past 18 months worldwide.
In a way, what is happening in Dubai may be the beginning of the "exit strategies" that have justifiably led to some anxiety among investors.
After a period of unprecedented full blanket guarantees, we will be seeing the return to some "normality", either because government finances cannot afford other general bail-outs or because they think this is not a healthy use of taxpayer’s money. The normalization process will be a bumpy ride – a main theme for 2010.
Therefore, there are many reasons to look at large government debt in the advanced world in particular, irrespective of what happens in Dubai.
Additional global implications may well be that this episode is unlikely to convince emerging market economies to have fewer foreign exchange buffers – and this will complicate the winding-down of global imbalances.
Financial institutions: Potentially sizeable local impact; Discernible but not material global impact
The events of last week raise three important questions
First, does the announced debt restructuring of the Dubai World entities represent a material exposure that could move the Bank Financial Strength Ratings (or BFSRs) of any exposed bank? Remember that BFSRs measure the intrinsic creditworthiness of a bank, before we incorporate our government systemic support assumptions.
As a related matter, the second questions is: does the decision of the Dubai government not to support Dubai World change our systemic support assumptions for banks of the region?
And finally, can the knock-on effects of the Dubai World debt restructuring cause credit quality to change?
Moody’s rates 15 UAE financial institutions including Islamic banks. The standalone ratings – Financial Strength Ratings (BFSR) – assigned to the banks range from D to C, while the deposit and debt ratings range from Baa2 to Aa3. The final ratings of the large UAE banks benefit from 2-5 notches of uplift as a result of strong systemic support that we impute from the Federal government.
The ratings of the three largest Dubai-based banks have been on review for possible downgrade for some time, while the ratings of two Abu Dhabi based banks have negative outlooks. Based on our preliminary analysis, these ratings and outlooks will not change for the time being.
Regarding the direct impact of last week’s events, we have no evidence suggesting that net direct exposures are sufficiently material to move ratings. UAE banks’ ratings already reflect our assessment that these banks have large exposure concentrations, and our scenario analysis already assumes a severe level of losses. The individual banks’ exposures to Dubai World are well within those loss assumptions.
UAE Banks rated by Moody’s hold 15%-20% of the total estimated USD60bn (59) direct exposure to Dubai World entities and we are currently assuming loss levels of 15% and 30% under our scenario analysis. By the way, the amount to be restructured is now said to be around USD26bn.
Our assessment is that exposed banks are well cushioned to absorb these losses: even the most exposed banks are well capitalized – Tier 1 capital ratios range from 12% to 16%; there also exist mechanisms that would force conversion into Tier 1 capital of Tier 2 instruments currently held by the government, and lastly, it is our expectation that the UAE authorities will continue to provide support to the banks in terms of liquidity, funding and capitalization.
Regarding the question of government support:
The proposed restructuring of Dubai World and Nakheel is a clear sign that the Dubai government is not prepared to support all the corporations that it sponsors and, as my colleague from the sovereign side has indicated, we remain alert to the risk of other such restructuring announcements and their repercussions.
Our assessment of banks’ supported ratings is based on the belief that banks are special; banks are central to a nation’s payment system and are critical to the economic growth and sustainability of the Emirates. That being said, we have no reason to believe that the Central bank of the UAE would not support their banks. In fact, we have evidence of the opposite.
By way of illustration, over the past 15 months, the central bank of the UAE has injected liquidity into the banking system, it opened a special repo window to facilitate the monetization of banks’ assets and it also explicitly guaranteed bank deposits. In addition, last Sunday, following the Dubai world event, the Central Bank announced additional and pre-emptive liquidity support measures.
Regarding the third question, about the potential repercussions on other companies and on the economy of the region more generally: The broader potential implications and severity of consequences of the Dubai World debt restructuring remain speculative. However, it is important to remain vigilant about the risks associated to this scenario.
In the event of further escalation in the number of Dubai corporations that might default, and in the event of a further degradation of investor confidence in the companies and the economy of the region, more banks would be exposed in a more profound way than we are seeing today.
Dubai banks tend to have large exposure concentrations, and they would be particularly impacted by multiple defaults, higher unemployment and lower investment in the region. Under such circumstances, ratings could obviously fall.
We are still awaiting feedback from individual international banks regarding their net exposures. However, based on our preliminary assessment, we expect no material loss at any of the international banks exposed to Dubai World.
Similar to the UAE-based banks, while the Dubai World debt restructuring adds incremental risks to all affected banks’ credit profiles, it is not, in and of itself, expected to cause ratings to move.
For the time being, the only consequence that we expect to result from this event is a change in investors’ perception of the risks associated to Dubai and the UAE, and a re-pricing of risks and opportunities.
Islamic finance: A test of resilience Sukuk in distress
In many ways, this has been an extraordinary crisis, but it is the first for the embryonic sukuk industry. The youth of the market has meant that such funding instruments are untested as various sectors of regional economies contract or even collapse. All across the GCC, over-leveraged corporates are stretched with some very notable defaults and now perhaps one of the most significant in the region – Nakheel/Dubai World.
Restructurings are common occurrences in mature markets, but the immature and opaque nature of the local legal and creditor environment as well as that lack of precedent give little comfort to investors spread across the world.
In addition to these issues (which affect conventional as well as Islamic issuers) is the complexity of funding instruments that comply with the ethical investment principles of Islam, more commonly known as sukuk.
These instruments seek to comply with prohibitions on interest (seen as usurious) and are meant to give investors a share of a tangible cash-generating asset.Ideally, they should be secured instruments with the risk of non-payment linked more to the asset performance and not leveraged borrowers (leverage is also discouraged).
However, the desire for Middle Eastern corporate credit exposure (from global investors) and unsecured debt (from local issuers) has created sukuk instruments that, in substance, attempt to be identical to conventional bonds. The form, however, is highly complex, generating some confusion that is perhaps exploitable by distressed and conflicted issuers.
For example, the lack of standardization means that default interest may not be contractually payable, or it could lead to non-payment of such ‘challengeable’ interest on some sukuk issuances.
‘Profit’ is commonly paid on sukuk instruments and is typically analogous to a fixed-income coupon, with non-payment a hard default.
However, the whole presentation of the structure is one where investors are meant to receive a share of the profits and not interest on debts – two very different obligations. It could be argued that, because an issuer is not generating profits, it should not have to pay sukuk investors – indeed, a distressed borrower has every incentive to explore all options.
In most cases, however, the obligation is clear and unambiguous. With the exception of Saudi Arabia, the obligations are subject to civil code jurisdictions where Shari’ah may be incorporated as a source of law, but is not the governing law applicable to commercial transactions – and ultimately enforcement under local law is required.
Given the sheer scale and complexity of Dubai World, this event will be an important test of investors’ rights. If indeed some sukuk are not found to be equivalent to conventional bonds in a default or restructuring, it will have a significant effect on the shape of the sukuk market to come.
UAE Islamic banks in the spotlight
Moody’s rates four Islamic financial institutions in the UAE, with different business and risk profiles, including three banks (Abu Dhabi Islamic Bank, Dubai Bank and Dubai Islamic Bank) as well as a mortgage finance company (Tamweel).
As such, their respective exposure to direct and indirect risks pertaining to the recent events in Dubai also varies materially, commensurate with the potential rating impacts.
Islamic banks are no exception, as they carry sukuk in their investment books and have funded as well as unfunded credit exposures to either Nakheel and /or Dubai World.
Therefore, Islamic banks will directly suffer from the economic provision and impairment charges attached to such exposures, irrespective of any accounting treatment.
In addition to the direct credit-related charges that Islamic financial institutions will likely suffer over the short to medium term, ratings could be driven downward by indirect consequences.
On the one hand, the overall quality of credit exposures on Dubai-related companies will have to be reassessed, if not repriced, and confidence as well as liquidity may fade away, reigniting recent years’ fears of vanishing liquidity, including on the interbank market. On the other hand, support from Dubai-based shareholders, once assumed high, may be viewed as having weakened across the board for all institutions, corporates and banks alike, Islamic or not.
However, from one Islamic lender to another, the magnitude of the direct write-downs and indirect knock-on effects will differ.
Abu Dhabi Islamic Bank (ADIB – A2/Prime-1; stable) has a very small investment portfolio, and, relatively speaking, a negligible exposure to restructured sukuk and/or stocks of troubled firms. As far as its credit portfolio is concerned, its business model has been skewed towards increasing retail lending and dominating Abu Dhabi borrowers in the corporate banking book.
Therefore, we expect all ADIB’s ratings to remain stable in the short to medium term.
Dubai Bank (DB – A3/Prime-2; stable) has been surprisingly underexposed to both borrowers, preferring to do business with retail customers and related parties close to its shareholding companies (within the Dubai Holding universe).
However, as the overall economic environment, sentiment and liquidity profile of Dubai-based companies is expected to deteriorate, a bank still highly concentrated on the Emirate’s leading borrowers is likely to see its ratings come under pressure.
The same applies for Dubai Islamic Bank (DIB – A1/Prime-1; RUR Negative), whose ratings have already been placed under review in the wake of several fraud issues, large defaults, sizeable concentration risks and heavy exposures to the depressed property sector.
Among UAE-based Islamic financial institutions, DIB is also the most heavily exposed to both Nakheel and Dubai World. This further confirms the current pressure on its ratings.
Finally, Tamweel (Baa1/Prime 2; RUR Uncertain) – just like ADIB and DB – carries a very small investment portfolio compared to the size of its balance sheet, and no direct exposure on Dubai World or Nakheel.
In addition, Tamweel is not in the business of corporate lending, but is a monoline engaged in mortgage financing. While its ratings were downgraded in 2009 and remain on review with direction uncertain, the direct link between Tamweel’s credit profile and recent events is lax.
However, like DIB and DB, Tamweel is mainly a Dubai-based institution, and as such is expected to suffer from two negative spillover effects: one the one hand, we incorporate some support from the Dubai government in the six-notch rating uplift that is encapsulated in Tamweel’s ratings, which could well be revisited; on the other hand, there is a close correlation between the overall economic climate and the dynamics of the property sector in any market, especially in Dubai.
This would suggest that another wave of stress in the Emirate’s real estate sector will likely contribute to weakening Tamweel’s business opportunities, franchise value and recovery prospects.
Concluding remarks
1. The Dubai World episode is a very significant local event that affects the premises that underlie our assumptions regarding public support for corporate GRIs. While we do not rate Dubai World or Nakheel, we have adjusted our support assumptions based on the uncertain nature of policy formulation in Dubai and the difficulty in interpreting the local authorities’ pronouncements.
2. These developments and Moody’s subsequent downgrades have shifted a good part of Dubai’s activities into high-yield territory, and will likely affect Dubai’s financing conditions and overall strategy for an extended period.
3. Given our expectations that financing conditions will remain durably hostile for Dubai Inc, a question will be whether asset disposals overseas can realistically help mitigate financing difficulties. Should such a route be taken, we will closely monitor the repercussions in the countries and sectors where such asset sales take place, and also whether these would weaken the otherwise robust Dubai GRIs that would be stripped of their assets.
4. The direct impact for banks locally and regionally, while significant, should be mitigated by the large-scale support provided by the federal authorities; the impact for international banks meanwhile is discernible but not material.
5. The rating of the United Arab Emirates, which is underpinned by Abu Dhabi’s considerable balance sheet strength, is not threatened. Indeed, the "selective support" strategy, while clearly fraught with operational difficulties, somewhat protects Abu Dhabi’s finances.
6. The Dubai World default, which is essentially an effort to ring-fence government finances, cannot realistically present a contagion risk for other sovereign states globally. However, the Dubai World episode acts, on the one hand, as a reminder that some governments have stretched their balance sheets beyond comfortable levels during the crisis – and, on the other, also presages that 2010 is likely to see more bouts of volatility as governments start implementing exit strategies from their protective policies.
from:theedgemalaysia.com/business-news/154802-dubai-inc-assessing-the-fallout.html
I was visiting the UAE including Dubai in Oct, 2009 on a recent cruise trip.
My very first visit there and I came away with the following thoughts:
1. Dubai has the world’s tallest office building, biggest man-made RE development, self acclaimed 7 star hotel, indoor ski runs in the middle of the hot desert, huge shopping malls, etc…, but the city state has no substance once you peered thru all the glamour facial dressings.
What a pity!
2. The ruling family has so much money that they don’t know what to do with it. They invest in buildings and properties when they should have invested in human resources.
Dubai has the worst business model to build a nation. 100% of the work was done by 80% of the expats and yet the expats have no right at all.
Dubai should learn from the US, allow expats to become immigrants to take roots in the society and become middle class citizen and loyal to the state for generations to come.
3. Too much waste and messing with the nature.
Let’s face it; Dubai is situated in a desert, so don’t try to turn it into a manmade oasis by desalinate the sea and irrigate the desert land. Nature has ways to get even with whoever messing with it.
4. As a tourist, I am not interested in the high rise and fancy tall buildings; I am interested in the people and culture of the land.
I did meet lots of very nice people from everywhere in the world but the local emirates. If the emirates are too important to social with tourists, then at least build a somewhat decent museums (which I found none exists) for the tourist.
The only 2 emirates I came in contact with during my entire visit, worked at the service desk in the airport.
The reason I guessed they were local emirates is because they were very rude.
Its DNA is intact but Dubai’s reputation is in tatters
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HERE’S how not to communicate you’re in a financial hole: Put out a terse statement asking for a six-month payment moratorium on US$60 billion of debt that you owe, and then promptly close shop for a four day public holiday.
That is what Dubai World did last Wednesday. It scared the daylights out of the markets and, in the absence of any further information, triggered all manner of paranoid speculation. Is Dubai itself going bust? Will there be contagion? Who will be next? Can already weakened banks withstand this?
After the emirate finally emerged from its holiday this week, Dubai’s government made clear that it will not stand guarantee for the debts of Dubai World, even though the latter is a state-owned conglomerate. Thereafter, Dubai World, which has operations spanning property, ports, infrastructure and much else, tried to reassure everyone that things actually aren’t so bad. It revealed that it plans to restructure only US$26 billion of its debt. Moreover, many of its assets are on a ‘stable financial footing’ such as Dubai Ports World, the Jebel Ali Free Trade Zone and the investment arm Istithmar, and these would not be part of any deal; the restructuring will apply only to the dud assets, mainly property. Meanwhile, Dubai’s oil-rich fellow emirate of Abu Dhabi indicated, ever so cautiously, that it will consider providing financial support for Dubai World, but only on a ‘case-by-case basis’.
No systemic threat
What does one make of this confusing, opaque mess?
The good news is that Dubai’s woes pose no systemic threat. After the bailouts and workouts we have witnessed over the 15 months, a restructuring of US$26 billion, or even US$60 billion, is manageable. This does not, of course, mean there won’t be pain. High on the list of the losers will be some banks, mostly British, which lent with wild abandon during the heyday of Dubai’s construction boom – probably the biggest in the region since the building of the pyramids.
Some bankers are reportedly furious, indicating they were conned into believing that they were covered by a sovereign guarantee – even though this was not explicitly spelt out. But as with other instances of over-exuberant lending, the bankers have only themselves to blame.
They are not the only losers, however: Construction, engineering and consulting firms are also stuck with unpaid bills; UK engineering firms alone are owed some £pounds; 250 million (S$575.2 million). But the most innocent victims are the hundreds of thousands of construction and other blue-collar workers, mostly from Asia, who have been rendered jobless overnight, with sometimes months of back wages unpaid. Thousands of well paid expatriates too, will take a hit. A lot of unhappy people will be leaving Dubai, never to return.
What of the debt restructuring itself? The Dubai government’s refusal to make good the debts of Dubai World is wise. The loans were clearly commercial deals, whether or not bankers believed otherwise. However, Dubai World’s attempt to ring fence its good assets and try to limit the restructuring to only those loans related to property sounds like a non-starter. More likely, in the complicated negotiations that will follow, everything will have to be put on the table. So while bankers may take some haircuts, Dubai World may also have to sell some of its good assets – and there’s plenty to choose from, ranging from golf courses to indoor ski resorts, to port facilities to stakes in blue-chip companies. From all indications, Abu Dhabi, too, will demand a quid pro quo for its financial support – which may include taking control of some of the assets owned by Dubai World.
Damage repair
When the mess is finally cleaned up, Dubai World could be a shadow of its former self. But that won’t be the end of the story. Dubai itself will have a lot of work to do to repair its reputational damage. It will have to put in place greater accountability, corporate governance and prudential controls – all of which have, as is now obvious, been in short supply. It will also have to rein in some of its extravagant ambitions – no more pharaonic projects, even if for no other reason than that there are unlikely to be bankers available to finance them, at least for a while.
Eventually, however, Dubai will be back as a vibrant business and financial centre. It has the location, it has the connectivity and it has the DNA that no other city in the Gulf can come close to matching.
from:businesstimes.com.sg/sub/news/story/0,4574,362154,00.html?
Dubai govt ring-fences key assets
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DUBAI: Dubai moved yesterday to ring-fence prized assets from the US$26bil debt restructuring of Dubai World, denting already fragile investor sentiment ahead of talks between the struggling conglomerate and key creditors.
Bahrain’s central bank governor said the kingdom’s exposure to Dubai World was limited, echoing top monetary officials in Saudi Arabia and Oman, while the biggest lenders in Qatar and Deutsche Bank both said they had no exposure.
Dubai World was expected to meet its main bank creditors this week, possibly as early as Monday, to discuss a request to delay debt payments that has shaken global markets and damaged the reputation of the Gulf’s business hub, bankers said.
London-listed Standard Chartered, HSBC, Lloyds and Royal Bank of Scotland would attend, along with local lenders Emirates NBD and Abu Dhabi Commercial Bank, an unnamed Abu Dhabi bank executive said last week.
Dubai’s finance chief said on Monday that state-controlled Dubai World might sell some assets to finance its commitments, but that the emirate would not chip in with any disposals of its own.
“Part of obtaining finance is selling assets … belonging to the company and not the government,” Abdulrahman alSaleh, Dubai’s finance department director-general, said in an interview with Al Jazeera television.
Saleh’s comments sent the Dubai stock market tumbling almost 6% to a 20-week low, reversing quick gains made on Sunday with DP World, the flagship unit of Dubai World, slumping 5.5%, while property stocks were all trading limit down.
Since Dubai World requested a payment standstill on Nov 25 for US$3.52bil worth of Islamic bonds maturing this month, regional government officials and bankers have looked to downplay the impact of the measure on their economies. Bahrain’s central bank governor joined the chorus on Monday, saying the kingdom’s exposure to Dubai World was less than 0.1% of total assets or US$281mil.
Deutsche Bank’s Middle East’s chief executive Henry Azzam said the bank did not have any exposure, and that he did not expect the crisis to have a major impact on the region’s banking sector. — Reuters
from:biz.thestar.com.my/news/story.asp?file=/2009/12/8/business/5258070&sec=business
Dubai World loses control of NY hotel in foreclosure
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NEW YORK: Dubai World’s investment arm, Istithmar, lost ownership of the W Union Square New York hotel in a foreclosure auction Tuesday.
One of the hotel’s interim lenders, a private equity firm called LEM Mezzanine, acquired the 270-room hotel for $2 million, according to Dow Jones.
The sale was another financial blow to Istithmar, which acquired the hotel in October 2006 for $285 million, according to Real Capital Analytics, a data tracking firm.
The New York auction comes almost two weeks after Dubai World revealed it was seeking at least a six-month delay on repaying $60 billion in debt.
The news rattled world financial markets and credit agencies slashed the debt ratings on Dubai’s state companies, saying they might consider the plan a default.
Calls to Dubai World and LEM Mezzanine were not immediately returned.
LEM said in a statement it plans to continue to operate the hotel and hopes to “take full advantage of any market recovery.”
New York hotels have struggled in the wake of the recession and financial downturn that have curbed business and leisure travel.
Many properties have slashed their rates to attract business.
At the beginning of December, owners of eight New York hotels worth a total of $985 million were in financial distress, including a Courtyard Marriott and The Time Hotel, according to Real Capital Analytics.
The W was not the only Dubai World hotel in trouble.
The Fontainebleau in Miami Beach is also in financial straits.
The property’s $660 million loan was due in August.
Contractors also claim the owner of the historic hotel owes them $60 million.
from:biz.thestar.com.my/news/story.asp?file=/2009/12/9/business/20091209073343&sec=business
Dubai Properties makes sweeping changes at top
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The finance director and several senior managers of Dubai Properties abruptly departed the group yesterday as part of a shake-up at assets owned by Dubai Holding.
Dubai Properties built the Jumeirah Beach Residence, which includes a promenade popular with tourists, and is developing Business Bay, the commercial district.
It is also the developer behind the 18-hole Tiger Woods Dubai golf course, designed by the golfer.
The departures are the third management reshuffle at a Dubai government-linked conglomerate over recent months, after similar moves at Dubai World and the Investment Corporation of Dubai.
The reorganisation follows a merger of Dubai Properties with Tatweer and Sama Dubai, all units of Dubai Holding, in August, and the breakdown of a planned deal to combine with Emaar Properties that was abandoned earlier this month.
David Anderson, chief financial officer of Tatweer, has been named as Dubai Properties’ new chief financial officer. Mr Anderson is an auditing specialist who has previously worked at Unilever, Cadbury Schweppes and Colt Telecom.
Jayne O’Brien, a British Airways veteran, has been named chief marketing officer of Dubai Properties. The company also appointed new executives to lead financial affairs, legal affairs, operations and property development.
from:business.timesonline.co.uk/tol/business/industry_sectors/construction_and_property/article6969083.ece
Burj Dubai Welcomes First Residents From Feb 2010
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Burj Dubai, the world’s tallest building, will receive its first residents as early as February 2010.
They will be the first of over 12,000 people who will live and work in the mixed-use tower comprising luxurious apartments, prime office space and the world’s first Armani Hotel, among other modern lifestyle amenities.
Following the inauguration of Burj Dubai on Jan 4, 2010, its developer Emaar Properties will immediately take charge of the property from various consultants, contractors and suppliers.
From Jan 5, the public can access the ‘At The Top’, Burj Dubai, the world’s highest observation deck on Level 124 of the tower, according to a statement from Emaar.
At over 800m, the Burj Dubai has already achieved the distinction of being the world’s tallest structure, surpassing the KVLY-TV mast (628.8m) in North Dakota, United States.
Emaar is being tight-lipped on the actual height of the soaring tower that dominates the Dubai skyline.
from:bernama.com/bernama/v5/newsbusiness.php?id=465552
Dubai opens half-mile-high tower, world’s tallest
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Dubai opened the world’s tallest skyscraper Monday in a blaze of fireworks, then added a final flourish: It renamed the half-mile-high tower for the head of neighboring Abu Dhabi, whose billions bailed out Dubai amid last year’s financial crisis.
Long known as Burj Dubai — Arabic for “Dubai Tower” — the building rises 2,717 feet (828 meters) from the desert. The $1.5 billion “vertical city” of luxury apartments and offices and a hotel designed by Giorgio Armani also plans to have the world’s highest mosque (158th floor) and swimming pool (76th floor).
Its backers wanted the skyscraper to be a monument to the boundless, can-do spirit of Dubai — one of a federation of seven small sheikdoms that make up the United Arab Emirates — but the timing could not be worse. Property prices in parts of Dubai collapsed by nearly half in the past year, the result of easy credit and overbuilding during a real estate bubble that has since burst.
Riding to the rescue was Sheik Khalifa bin Zayed Al Nahyan, the ruler of oil-rich neighbor Abu Dhabi, which pumped tens of billions of dollars into Dubai last year as it struggled to pay enormous debts.
As officials opened the tapering metal-and-glass spire with fireworks and multicolored lights, they unexpectedly announced it would be renamed Burj Khalifa, to honor the Abu Dhabi leader who is also president of the UAE.
Thousands of cheering, clapping spectators watched as a tally projected on huge screens at the opening ceremony revealed the tower’s most closely guarded secret — its height of 2,717 feet. That made it more than 1,000 feet higher than the skyscraper known as Taipei 101 in Taiwan, which at 1,667 feet had been the world’s tallest since 2004.
The tallest building in the United States, the Willis Tower in Chicago, comes in at 1,451 feet. Before they were destroyed in the Sept, 11, 2001, attacks, the World Trade Center towers both topped 1,360 feet. The Freedom Tower being planned for the site will measure 1,776 feet, with completion estimated in 2013.
The exact number of floors for the Burj Khalifa is not known, and could reflect how the developer chose to calculate the total.
Mohammed Alabbar, chairman of the tower’s developer Emaar Properties, initially said Monday it had “more than 200” stories, but he later backtracked to more than 165 inhabitable floors, given its tapered top. Promotional materials sent before the tower’s opening said it contained 160 stories.
Developers say they are confident in the safety of the tower, which is nearly twice the height of New York’s Empire State Building.
Greg Sang, Emaar’s director of projects, said the Burj Khalifa has “refuge floors” at 25 to 30 story intervals that are more fire resistant and have separate air supplies in case of emergency. Its reinforced concrete structure, he said, makes it stronger than steel-frame skyscrapers.
“A plane won’t be able to slice through the Burj like it did through the steel columns of the World Trade Center,” he said.
Dubai has not been a target of terrorist attacks or threats that have been made public.
The tower was designed by Chicago-based Skidmore, Owings & Merrill, which has a long track record in engineering some of the world’s tallest buildings, including the Willis Tower.
Ahmed Elghazouli, a professor of structural engineering at Imperial College London who was not involved with the Burj’s construction, said such groundbreaking buildings typically employ some of the world’s best engineers, and go through more rigorous testing and require more studies during design than standard towers.
“I have no doubt that it has been looked after very well in terms of design and construction,” he said when asked about the building’s safety. “I would be much more comfortable getting into a building like this knowing that so much background work has gone into it.”
Dubai was little more than a sleepy fishing village a generation ago, but it boomed into the Middle East’s commercial hub in the past two decades on the back of business-friendly trading policies, relative security, and vast amounts of overseas investment.
With little oil of its own, Dubai relied on cheap loans to pump up its international clout during the frenzied boom years.
But like many overextended homeowners, the emirate and its state-backed companies borrowed too heavily and then struggled to keep up with payments as the financial crisis intensified and credit markets froze up.
The sheikdom shocked global markets last year when it unexpectedly announced plans to reorganize its main state-run conglomerate Dubai World and sought new terms in repaying some $26 billion in debt. It got some aid from Abu Dhabi’s bailouts.
Dubai’s hereditary ruler, Sheik Mohammed bin Rashid Al Maktoum, in recent months has increasingly spoken of the close relationship between the two emirates, declaring in November that “Dubai and Abu Dhabi are one” and will “be there for each other.” Sheik Mohammed serves as vice president and prime minister of the UAE federation.
Analysts had questioned what Dubai might need to offer in exchange for the financial support it received from Abu Dhabi, which controls nearly all of the UAE’s oil wealth. Abu Dhabi provided $25 billion last year as Dubai’s debt problems deepened.
“It’s really quite remarkable to have to name your biggest and most memorable landmark after the living monarch of a neighboring emirate,” said Christopher Davidson, a professor at the University of Durham who has written extensively about the UAE.
Burj developer Emaar is also partly owned by the Dubai government, but is not part of struggling Dubai World, which has investments ranging from Dubai’s manmade islands and seaports to luxury retailer Barneys New York and the ocean liner Queen Elizabeth 2.
Emaar’s Alabbar said the landmark Burj is 90 percent sold in a mix of residential units, offices and other space, offering a counterpoint to Dubai’s financial woes.
At their peak, some apartments in the Burj were selling for more than $1,900 per square foot, although they now can go for less than half that, said Heather Wipperman Amiji, chief executive of Dubai real estate consultancy Investment Boutique.
Amiji said some buyers may struggle to find tenants at going rates once the tower’s expected high service charges are factored in.
The building ranks as the world’s tallest structure, beating out a television mast in North Dakota.
Early designs for the Burj had it edging out Taipei 101 by about 33 feet (10 meters), said Bill Baker, the building’s structural engineer.
“We weren’t sure how high we could go,” said Baker, of Skidmore, Owings & Merrill. “It was kind of an exploration … a learning experience.”
Work began in 2004 and moved rapidly. At times, new floors were being added almost every three days. During the busiest construction periods, some 12,000 people worked at the tower each day, according to Emaar. Low-wage migrant workers from the Indian subcontinent provided much of the muscle.
The Burj is the centerpiece of a 500-acre development that officials hope will become a new central residential and commercial district in this sprawling and often disconnected city. It is flanked by dozens of smaller but new skyscrapers and the Middle East’s largest shopping mall.
That layout — as the core of a lower-rise skyline — lets the Burj stand out prominently against the horizon. It is visible across dozens of miles of rolling sand dunes outside Dubai. From the air, the spire appears as an almost solitary, slender needle.
An observation deck on the 124th floor opens to the public Tuesday, with adult tickets starting at 100 dirhams, or just over $27 apiece. The ride to the top took just over a minute during a visit for journalists Monday.
Dubai landmarks like the sail-shaped Burj al-Arab hotel and the manmade Palm Jumeirah island were visible through the haze.
The Burj itself cast a sundial-like shadow over low-rise houses and empty sand-covered lots stretching toward the azure Persian Gulf
from:news.yahoo.com/s/ap/ml_dubai_tallest_building
Indebted Dubai puts on brave face for tower opening
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Dubai opened the world’s tallest structure in a glitzy ceremony meant to put a brave face on crushing debt woes, leading some to wonder whether the Burj Dubai is the emirate’s crowning glory or its last hurrah.
The US$1.5 billion (RM5.13 billion) tower will reach 200 storeys into the sky, and although officials have not yet revealed the exact height, it will exceed the next highest structure by some 300 metres (1,000 ft).
But concerns about the emirate’s US$100 billion debt pile, which have made Dubai’s stock exchange one of the world’s worst performing, overshadow both the ceremony and boasts by the builder Emaar PROPERTIES []
that the Burj heralds a new dawn.
“The worry for Dubai is that the event will be remembered as a second bout of hubris,” said David Butter, regional director for Middle East and North Africa at the Economist Intelligence Unit (EIU).
The first bout was in November, 2008, two months after the collapse of Lehman Bros, when Dubai spent US$24 million on the opening ceremony of the Atlantis hotel, an event that did more to highlight a taste for extravagance than assuage fears that the economic crisis was not being taken seriously.
Emaar says property prices have now stabilised, confounding wider expectations for stress in the sector.
“You have to ask, ‘Why we are building all this?’ To bring quality of life and a smile to people and I think we should continue to do that,” said Mohamed Alabbar, chairman of Emaar, the Arab world’s largest listed developer.
“Crises come and go,” Alabbar told reporters. “We build for years to come… We must have hope and optimism.”
But investors took little heart, with Emaar shares closing down 3.4%, pulling Dubai’s broader index 2.6% lower.
“This is the culmination of Dubai’s momentum and not just Emaar’s,” said Saud Masud, UBS head of research. “It is probably the end of Dubai mega projects for the next several years as the emirate tries to rationalise its resources and looks to build the economy again in some way or another.”
In a sign Dubai is trying to meet its obligations, DP World — a subsidiary of state-owned holding company Dubai World — said yesterday it had paid obligations tied to a sukuk and a bond issue on time. Dubai sent shockwaves through global markets on Nov 25 when it said it would request a standstill on billions of dollars of debts linked to state-held holding firm Dubai World and its property units Limitless and Nakheel, developer of three palm-shaped islands.
Dubai World is expected to pitch a formal standstill proposal on its debt payments to creditors this month, while it comes up with a restructuring plan.
The conglomerate has already moved to ringfence its profitable assets, and said that its debt restructuring excludes firms on a “stable financial footing” such as DP World, Istithmar World, and Jebel Ali Freezone.
The tower’s height is a closely guarded secret, but is known to exceed 80m (2,625ft). The opening has been delayed twice and, unlike other projects, survived cancellations after the crisis hit the once-booming city.
Experts say land scarcity or urban density does not justify the height of the building, rather its “iconic” appeal is a symbol of Dubai’s ambitions.
From the 124th floor observation deck of the tower, viewers can see 50 miles (80km) on a clear day. The air is noticeably cooler and fresher on the terraces compared to the stifling heat and humidity at ground level during Dubai’s summer.
Terraces are located at setbacks spiralling up the tapered tower, which is based on the “geometries of the desert flower and the patterning systems embodied in Islamic architecture,” according to its promotional literature.
from:theedgemalaysia.com/business-news/156774-indebted-dubai-puts-on-brave-face-for-tower-opening.html
Burj Dubai opens amid hard times
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Started at the height of the economic boom and built by some 12,000 labourers, the world’s tallest building opened yesterday in Dubai as the glitzy emirate seeks to rekindle optimism after its financial crisis.
Burj Dubai, whose opening has been delayed twice since construction began in 2004, marked another milestone for the deeply indebted emirate with a penchant for seeking new records.
Dubai, one of seven members of the United Arab Emirates, gained a reputation for excess with the creation of man-made islands shaped like palms and an indoor ski slope in the desert.
With investor confidence in Dubai badly bruised by the emirate’s announcement in November that it would seek a debt standstill for one of its largest conglomerates, the Burj Dubai is seen as a positive start to the year after a bleak 2009.
The project has been scrutinised by human rights groups, who have objected to its treatment of labourers, as well as by environmentalists who said the tower would act as a power vacuum, increasing the city’s already
massive carbon footprint.
But despite the criticism, many say the edifice, believed to have cost US$1.5bil to build, is an architectural marvel. The tower’s height has been kept a closely guarded secret until now. Developer Emaa Properties PJSC will reveal the height – known to exceed 800 metres (2,625 feet) – today and Dubai’s ruler will inaugurate the opening.
Experts believe Dubai’s recent financial troubles have not hurt sales of about 1,100 residential units in the Burj – meaning tower in Arabic – saying they were nearly all sold.
Dubai’s real estate sector crashed at the end of 2008 when the global financial crisis hit the emirate after a six-year economic boom. Thousands of jobs were slashed and projects worth billions of dollars were cancelled or delayed.
With analysts suggesting tax-free Dubai might sell some of its assets to boost revenues and slash US$80bil in debt, many wondered if the tower was on the list for grabs.
from:starproperty.my/PropertyScene/AgencyNews/1362/0/0
The Dubai crisis: A case of the inevitable
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Following recent headlines on Dubai’s billion-dollar debt problem, there has been a spate of analyses.
Some were very detailed and contained a list of lessons to be learnt by other countries.
One recent and notable analysis emphasises the need for predictable, sustainable, clear and certain policies and argued that it is because of the lack of all those factors that Dubai is currently facing problems.
In other words, the writer is saying that not only is it possible for countries to avoid financial crises, it is also very simple since what is needed is to make sure that the countries’ policies are not unpredictable, not unsustainable, not unclear and not uncertain.
The question that springs to mind will then be: How come all those brilliant Ivy League-educated policy makers in countries that have experienced debt-related financial crises in the past such as Iceland, Britain, south Korea, Indonesia, Thailand, Argentina, Brazil and of course the United States itself (which boasts of having top universities in the world and the most number of Nobel laureates in the field of economics and finance) have not figured out these simple rules in the past?
And come to think of it, if the avoidance of financial crisis is so simple, why do people bother so much in carrying out detailed research in order to prevent their recurrence?
Maybe we should also not be too agonized with the fact that Malaysia has not produced any Nobel Prize winner in the field of economics or finance.
The experience of the US has shown that having the best economics brains in the world is not going to help a country avoid the occurrence of financial crises.
Coming back to Dubai, it is worth pondering why financial crises continue to occur even though there had been so many crises in recent years which ought to have yielded important lessons.
These include the 1987 Black Monday Crash, the 1994 Mexican Financial Crisis, the 1997 Asian Financial Crisis, the 1999 Brazilian Financial Crisis, the 2001 Argentina Financial Crisis and the 2007 US Sub-prime Financial Crisis.
Surely policy makers have had enough data, facts and information at their disposal to help them prevent the occurrence of a financial crisis, especially if it as simple as coming up with policies which are predictable, sustainable, clear and certain.
To be sure, financial crises are not a new phenomenon.
They have been taking place for hundreds of years.
One of the most famous was the Tulip Crisis in Holland which took place in the 1630s.
What happened was that many highly indebted people could not repay their debts, enough to cause a crisis in the Dutch economy.
While the Tulip Crisis was caused by over-speculation in tulip bulbs, in the case of Dubai, the cause is over-speculation in the property sector.
But the essence of the two stories is the same: people got excited with the booming price in a particular sector.
They then borrowed heavily to engage in speculative transactions causing further increase in the size of the speculative ‘bubbles’.
Eventually the bubbles burst and many people became financially unstuck causing a downward spiral of price and more trouble to the economy which eventually led to financial and economic crises.
Strangely enough, however, it seems that this simple lesson on the importance of having predictable, sustainable, clear and certain policies was not easily learnt because well after that episode, financial crises continued to erupt in Europe and the United States.
The most famous ones include the 1720 South Sea financial crisis in London, the US panic of 1873, and the Great Depression of the 1930s.
They all have one thing in common.
Many people borrowed money in order to engage in speculative transactions in a variety of assets such as properties and stocks.
These activities led to asset bubbles which eventually burst, resulting in widespread financial insolvencies and, thereby, economic crises.
One notable fact is that these financial crises during the 17th, 18th and 19th centuries took place mostly in Europe or America and not in places such as the Middle East or Southeast Asia.
So a question worth asking is whether in these regions, predictable, sustainable, clear and certain policies were in place to regulate their financial sectors?
Well, obviously that is not true for the simple fact that in these regions, in those eras, had no financial sector to regulate.
In other words, the main reason they did not experience any financial crisis was simply that they did not have any significant financial sector to start with.
Of course eventually they began to develop their own financial sectors and soon they too experienced financial crises.
The most serious one for Southeast Asian countries was the 1997 financial meltdown and just as in the case of other financial crises, it was also a story of debts, speculations and the bursting of asset bubbles.
Truth be told, once a country developed a lending-for-profit sector of its own, there is no avoidance of a financial crisis even if predictable, sustainable, clear and certain policies are in place.
Britain and America are the best examples of this.
As is well known to many, these are two countries which are models to others in terms of financial regulations and supervision.
Nevertheless the fact remains that the same two also happen to be among the ones which are experiencing the worst financial crises in the world.
One very important, maybe the most important, lesson we should learn is that the occurrence of financial and debt crisis is an inevitable outcome of the existence of a lending-for-profit sector.
And the more developed, sophisticated and advanced the sector is, the bigger and more serious will the crisis inevitably be.
●Dr Mohd Nazari Ismail is a professor at the Faculty of Business and Accounting, University of Malaya
fr:biz.thestar.com.my/news/story.asp?file=/2010/1/12/business/5450742&sec=business
Dubai’s First Foreclosure May Open Floodgates in Worst Market
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Dubai’s housing rout sent prices down 52 percent in the past year, prompting some homeowners to abandon their cars and mortgage payments and flee the country. Not one received a foreclosure notice.
Until now.
Barclays Plc. won the sheikdom’s first foreclosure cases in court, clearing the way for lenders holding about $16 billion of Dubai home loans to take action when borrowers don’t pay. Islamic lender Tamweel PJSC, the emirate’s biggest mortgage bank, has several of its own foreclosure claims pending and estimates about 3 percent of its mortgages are in default.
“Banks will be more aggressive in pursuing legal action if they see the process is efficient,” said Antoine Yacoub, a banking analyst at Moody’s Investors Service Inc. “They were trying to avoid the courts and restructure most of their loans, but once they see a precedent has been set, they will be encouraged to push more cases through.”
The successful foreclosures by Barclays may open the floodgates in Dubai’s property market, which went from the world’s best in 2008 to the worst after credit dried up and speculators who had fueled price increases left the market, according to Deutsche Bank AG. Moody’s estimated in September that 12 percent of the 27,000 residential mortgages in the sheikdom would default within 12 to 18 months.
Banks and developers until now have avoided the process of reclaiming homes through the courts, barred by tradition and an arcane legal process that few understood. The Barclays and Tamweel cases may change that, because they show that a 2008 mortgage law — setting out rules for default, foreclosure and repossession — is working.
Mortgage Law
The law requires lenders to give homeowners 30-day notice of their intent to pursue a foreclosure, said Jody Waugh, a partner at law firm Al Tamimi & Co. in Dubai. Courts then review the case and can issue a debt judgment that turns the property over to Dubai’s Land Department for auction. Waugh estimates the process may take two to four months.
Barclays, Britain’s second-largest bank, said in an e- mailed reply to questions that it won the foreclosure orders, without providing details of the cases. The ruling shows that Dubai’s market is “evolving and is poised to come at par with other mature markets of the world,” the bank said.
Both lenders and developers in the United Arab Emirates have tried to stem rising defaults through out-of-court settlements with distressed customers after falling prices left buyers with mortgages worth more than their properties. That has helped minimize the amount of bad debt on their balance sheets and kept repossessed houses off a market that’s already suffering from too much supply. Provisions for bad loans in the U.A.E. surged 68 percent by to 32 billion dirhams ($8.7 billion) as of November, compared with a year earlier.
Abandoned Homes
Before the mortgage law was passed, lenders and builders could resort to the courts to enforce contracts, though they didn’t have the right to foreclose.
Tamweel’s pending cases, filed almost two months ago, involve homes abandoned by owners who left Dubai at the onset of the global financial crisis, Chief Executive Officer Wasim Saifi said. Tamweel’s default rate has been “hovering between 2.5 percent and 4 percent for the past six months,” he said.
As alternatives to foreclosures, lenders in Dubai have extended payment periods and developers allowed customers with several properties to return some of them. The absence of mortgage securitization gives U.A.E. lenders makes it easier for lenders to restructure loans than their counterparts in the U.S., where mortgage debt was often sold on to investors.
Foreign Banks
U.K.-based Standard Chartered Plc and HSBC Holdings Plc top the list of foreign banks providing mortgages in the U.A.E., according to Deepak Tolani, senior research associate at Al Mal Capital PSC.
“While it is not Standard Chartered’s preferred approach, foreclosure is a legitimate course of action should a borrower not meet their obligations,” the bank said in a statement. HSBC declined to comment on the issue when contacted by Bloomberg, while Islamic mortgage lender Amlak Finance PJSC didn’t respond to e-mailed questions.
Banks are unlikely to head to the courts to foreclose on properties en masse because of concerns that large numbers of repossessed properties on the market will drive prices lower, said Saud Masud, a Dubai-based real estate analyst at UBS.
While auctioning a few properties “will be easy,” hundreds or even thousands of foreclosure sales may draw buyers away from new and secondhand properties, Masud said.
‘Slippery Slope’
“It’s a slippery slope,” Masud said. “Mass auctions may reprice the property market in a meaningful way as investors prefer to pick real bargains in auctions.”
A cultural stigma attached to forcing people out of their homes has also deterred foreclosures. That may not protect speculative investors who helped drive prices up by buying several properties with the aim of selling at a profit soon after.
“The mortgage law has given clarity and certainty to the exact process that must be followed by anyone wishing to enforce a mortgage,” said Waugh, whose firm is currently handling fewer than 10 repossession cases.
Foreigner Population
Dubai’s population, which is about 90 percent expatriate, may drop by 8 percent in 2009 and another 2 percent in 2010, UBS AG estimated in March. Dubai’s immigration department doesn’t provide regular statistics on visas.
Citizens make up only about 20 percent of the overall U.A.E. population, which largely consists of workers from countries including Pakistan, the U.K. and Lebanon. Workers have one month to leave the country after their work visas are canceled.
Dubai first allowed foreigners to own property in 2002. That led real estate prices to quadruple in the following six years, helped by a growing expatriate workforce and speculation fueled by borrowing.
The U.A.E. last year scrapped a rule that automatically qualified homeowners in Dubai for a permanent residency visa. Owners of properties valued at 1 million dirhams or more are now required to renew residency visas every six months.
About 65,000 residential units will be completed in Dubai by 2011 and the emirate needs to create a minimum of 100,000 white-collar jobs to satisfy oncoming supply, Nomura said on Oct 15. Deutshe Bank estimates that 30,000 units may be delivered by the end of 2010.
Faster Process
“When people talk about litigation in the Middle East, they’re concerned over the possible time it would take to obtain a judgment,” Waugh said. “The speed at which it appears judgments may be obtained under the mortgage law is a real, positive sign for banks.” The Barclays cases were filed in November, he said.
The U.A.E.’s central bank in October proposed reducing the time it takes for a loan to be classified as non-performing by half to 90 days. Banks “most probably” will be asked to comply during the first quarter of this year, said Sofia El Boury, a banking analyst at Shuaa Capital PSC.
So far, no properties have been auctioned, according to Mohammed Sultan Thani, assistant director general at the Dubai Land Department. Requests may start pouring in this year as banks give up on other alternatives, he said.
“Amicable solutions are hard to reach when a buyer lost his job,” or when a property is worth less than the amount owed on it, Thani said.
Lending Swelled
Mortgage loans totaled 137.6 billion dirhams in July 2009, central bank data shows. About 25,000 to 30,000 mortgages have been taken in the U.A.E. with over 95 percent of them in Dubai, analysts say.
The central bank estimates that real estate accounts for about 13 percent of total loans in the U.A.E. Shuaa’s El Boury said the real figure is “much higher” and official numbers aren’t realistic “given the financing contributions to real estate construction and development in the U.A.E.”
The new mortgage law applies to only some kinds of Islamic lending, Waugh said. Shuaa estimates about 25,000 mortgages were extended by Tamweel and its competitor Amlak alone. The two lenders, which control more than half of the U.A.E’s mortgage market, are set to merge this year. Shares of both companies have been suspended since November, 2008.
Negative Equity
The biggest risks to banks come from loans underwritten after 2007, which are “most probably in deep negative equity by now,” Moody’s Yacoub said. Also at risk are Islamic Istisna’ mortgages where a buyer doesn’t make any payments until the property is delivered, he said.
Barclays said the court’s decisions will renew lenders’ faith in Dubai’s legal system, “which could result in bigger lending mandates specifically for mortgage business.”
Judging by the first cases, the process seems to be working, Al Tamimi’s Waugh said. “Like anything, there are a few teething problems that are being resolved, but the fact that we have obtained judgments so quickly is positive.”
fr:businessweek.com/news/2010-01-10/dubai-s-first-foreclosure-may-open-floodgates-in-worst-market.html
Japanese bank to join Dubai creditor panel
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Japan’s Bank of Tokyo-Mitsubishi will join six banks on Dubai World’s creditors committee, as the Gulf Arab firm hammers out a debt standstill plan, two bankers familiar with the situation said today.
The Asian bank has demanded a bigger voice on the committee — made up of four UK and two United Arab Emirate banks — to represent the interests of Far East lenders, according to one bank source.
State-owned Dubai World rocked global markets on Nov 25 when it said it would ask creditors to agree a standstill on US$26 billion (RM88 billion) of debt, linked to its main property units, Nakheel and Limitless.
A last-minute bailout from Abu Dhabi in December helped Dubai avert default on a US$4.1 billion Islamic bond by Nakheel.
But the conglomerate has yet to present a formal proposal to creditors on a standstill for the rest, some US$22 billion, which would enable it to restructure its operations.
“It’s good they got in, they were making all the noise, saying there was no representation from the Far East,” said a Dubai-based bank, who asked not to be identified.
Officials at Bank of Tokyo-Mitsubishi, a unit of Mitsubishi UFJ Financial Group, were not immediately available to comment. A Dubai World spokesman declined to comment.
The coordinating committee, which represents some 97 creditors of Dubai World, consists of Standard Chartered, HSBC, Lloyds and Royal Bank of Scotland, and local lenders Emirates NBD and Abu Dhabi Commercial Bank.
The conglomerate said this month it is “some time away” from presenting its formal plan to creditors, though it is expected in coming weeks.
Today, Dubai admitted that half of a US$10 billion bailout from Abu Dhabi last December came from an older debt deal.
fr:themalaysianinsider.com/index.php/business/50107-japanese-bank-to-join-dubai-creditor-panel
Dubai not seeking preferred status
All creditors in Dubai World debt talks to be treated on equal basis
DUBAI: Dubai is not seeking preferred creditor status in the restructuring process of state-owned Dubai World, a government spokeswoman said yesterday, removing one stumbling block in talks with lenders.
”All creditors, including the government, will be treated on an equal basis,” a government spokeswoman told Reuters.
The Dubai government, acting through the Dubai Financial Support Fund (DFSF), has given the conglomerate about US$6.2bil over the past 12 months and plans to provide more.
Collateral for further aid was cited as an impediment to a deal over Dubai World’s debt burden as it would make the DFSF a preferred creditor in the event of an insolvency.
Dubai World is still negotiating the terms of a US$22bil debt restructuring plan. The firm rocked global markets in November with plans to request a delay in repaying US$26bil in debt linked to its main property units Nakheel and Limitless World.
It staved off default on a US$4.1bil Islamic bond linked to Nakheel, after a last minute bailout from Abu Dhabi.
Local newspaper the National said yesterday the Dubai government would “take its share of any exposure” in the restructuring of Dubai World, citing a person familiar with the talks between the conglomerate and its creditors.
”If it (helping international banks to recover from the Dubai World restructuring) will be at the expense of the Government of Dubai, then so be it,” the source told the National.
”That stops short of saying they (the banks) will get full recovery, but it means the government will take its share of any exposure,” the source said.
fr:biz.thestar.com.my/news/story.asp?file=/2010/2/23/business/5722994&sec=business
Dubai in US$9.5b debt offer, no new Abu Dhabi aid
The Dubai government unveiled plans to recapitalise its indebted Dubai World flagship and repay Nakheel bonds in full, injecting what it said was US$9.5 billion (RM31.54 billion) in new funding, but without new aid from Abu Dhabi.
In a statement, the government said US$5.7 billion in remaining funds from a loan made by Abu Dhabi would provide the lion’s share of the overall US$9.5 billion and would also include what it called “internal Dubai government resources”.
“There is no new money from Abu Dhabi,” said a government official on a conference call. “This proposal is based on amounts remaining from the loans provided previously by the government of Abu Dhabi and from internal resources from the government.”
Dubai World said the total amount of debt held by creditors excluding the Dubai Financial Support Fund was US$14.2 billion at the end of December. Those creditors would receive 100% principal repayment through the issuance of two tranches of new debt with five and eight-year maturities, it said.
The Nakheel bond payback offer came as a surprise, as does the absence of a more visible role by wealthy neighbour Abu Dhabi, which has already pledged US$10 billion in aid to debt-struck Dubai. The government said the bond repayment depended on creditors accepting the proposal.
To read the statement from the Dubai Supreme Fiscal Committee, click
Dubai World, the Gulf Arab emirate’s flagship conglomerate, which includes the QE2 ocean liner and Barneys department store among its high-profile assets, said last year it would delay repaying US$26 billion in debt linked mainly to property units Nakheel and Limitless World.
The government said it was also offering to recapitalise Dubai World through the equitisation of the government’s US$8.9 billion claim and a commitment to fund up to US$1.5 billion in new funds.
Turning to property giant Nakheel, the government said it would inject US$8 billion in new funds and that it would equitise US$1.2 billion of the government’s claim
Bank creditors will be asked to restructure their debt at commercial rates, the government said. Trade creditors would be offered a significant cash payment and a tradable security, the statement said.
“Assuming sufficient support for the proposal, the 2010 and 2011 Nakheel Sukuk will be paid as they fall due,” the statement said.
Core creditors representing 97 banks met on Wednesday, March 24, to finalise months of talks on how Dubai World can restructure the debt, about a quarter of Dubai’s estimated total debt of US$101 billion.
fr:theedgemalaysia.com/business-news/162367-dubai-in-us95b-debt-offer-no-new-abu-dhabi-aid.html
Dubai’s Emaar to roll over debts
DUBAI: Dubai developer Emaar Properties said it would roll over US$1.23bil debt maturing this year into long-term project financing deals with analysts adding that the pressure to make hasty divestments was now off.
Emaar has 4.5 billion dirhams of loans maturing in 2010, its financial statements posted on the company’s website show.
“The loans maturing in the next one year are primarily bridge loans for Emaar’s international projects, and as per terms, are to be converted into longer-term project financing,” the company said in an e-mailed statement yesterday.
“Emaar expects the loans to be converted into project finance during this year,” the statement said.
Emaar, which is 31.2% owned by the Dubai government, is the Arab world’s largest listed developer. The firm is less indebted than some of the other Dubai property firms.
“Emaar’s debt position is very comfortable and the company has one of the lowest debt to equity ratios,” it said.
Shuaa Capital analyst Roy Cherry said rolling over the debt would enable Emaar to avoid premature divestments of key investment properties.
Analysts said Emaar’s cashflow remained solid this year and the debt rollover was a positive move.
Sana Kapadia, vice-president of equity research at EFGHermes, said the rollover was widely anticipated in the market and would allow the company to meet its international and local development obligations.
Beginning in the second quarter, she added that Emaar’s cashflow should get a boost from the handover of units from Burj Khalifa, the world’s tallest building.
fr:biz.thestar.com.my/news/story.asp?file=/2010/4/5/business/5994416&sec=business
Dubai heading for financial reforms
DUBAI: Dubai’s government said Sunday it is creating a finance team tasked with drafting a four-year financial plan and making recommendations on fiscal needs in the cash-strapped emirate.
The new body will operate under Dubai’s finance department and report to the existing Supreme Fiscal Committee, which is chaired by Sheik Ahmed bin Saeed Al Maktoum, a top aide and uncle of Dubai’s ruler.
“By forming the Dubai Government Finance Team, the government is emphasizing the need for further cooperation and coordination between the various components of the emirate’s financial system,” Dubai’s media office said in an e-mailed statement.
Dubai is scrambling to work itself out from more than $80 billion in debt amassed by the sheikdom and its many state-linked companies.
The semiautonomous city-state, one of seven that make up the United Arab Emirates, shocked global markets in November when it sought to delay repaying billions of dollars owed by its conglomerate Dubai World.
That move and subsequent statements from senior officials raised questions about the health of Dubai’s overall finances and renewed calls for greater transparency within the emirate, which has sought to establish itself as the Middle East’s financial hub.
Dubai’s government announced last month it would pump up to $9.5 billion into the struggling conglomerate as part of a long-awaited restructuring plan.
That proposal still needs approval from creditors.
The new finance team will be charged with developing a financial plan through 2014 and making recommendations on a new revenue structure, among other responsibilities, according to the media office.
“This step comes as part of a series of financial reforms aimed at enhancing efficiency of government spending, both capital and operational, and bolstering the rules that form the basis of Dubai’s fiscal policy,” the statement said.
It was not clear whether the new team will have legal authority or be only a consultative body.
It was also unclear whether the body would be involved in ongoing debt restructuring talks.
The government did not immediately reply to questions about the new council, which will be led by Jamal Hamed al-Marri, a director at Dubai’s finance department.
It will also include finance, municipal, police, health and transportation officials.
Dubai’s hereditary ruler has the final say on all internal policy decisions concerning the emirate and serves as vice president and prime minister on a federal level in the UAE
fr:biz.thestar.com.my/news/story.asp?file=/2010/4/12/business/20100412081859&sec=business
Dubai World in US$23.5b debt deal with lenders
Dubai World, the state-owned conglomerate, has reached a deal in principle to restructure US$23.5 billion (US$1 = RM3.27) in debt with the core lenders holding 60 per cent of the exposure.
The deal, which has no new financial aid from the government, must still be approved by banks outside the core negotiating panel, Dubai World said yesterday.
“We are not entirely happy but we are in a no-choice situation. Under the circumstances, this seems the best deal possible, even though it is not entirely satisfactory,” said a banker at a Gulf-based lender outside the core group.
Dubai, famed for extravagant property projects and a tax-free lifestyle, has struggled to bring its debt burden, estimated at US$101 billion, under control.
The Gulf Arab emirate used massive amounts of leverage to transform itself into a trade and tourism hub, but the global financial crisis and a collapse in oil prices in 2008 brought an abrupt end to a six-year boom.
The emirate stunned global markets last November when it said it would delay repayment of US$26 billion in debt linked to Dubai World and its property units, Nakheel and Limitless. Dubai unveiled a US$9.5 billion rescue plan in March.
“This closes the main chapter but that doesn’t mean we don’t have a bumpy ride ahead,” said Haissam Arabi, chief executive and fund manager at Gulfmena Alternative Investments. “There are still issues such as Dubai Holding and others, but this has been mostly discounted for. The air is not completely clear but the main chapter is.”
Investors, worried about a lack of transparency, are fretting about the risk of more debt problems at Dubai-linked entities. Speculation has centred on Dubai Holding – owned by the emirate’s ruler Sheikh Mohammed bin Rashid al-Maktoum – which has about US$10 billion in outstanding debt.
UAE markets edged higher, as investors gave a muted reaction to the deal.
“If this had come out two, three weeks ago, there would have been a much bigger impact, but the world has much bigger fish to fry,” said Matthew Wakeman, EFG-Hermes managing director for cash and equity-linked trading.
“The terms are strong, but nobody is going to be jumping up and down for joy for a restructuring. The main thing is that it reduces uncertainty,” he added.
The proposal offers repayment over a five- or eight-year period and allows lenders to take on additional options, depending on whether they are local or foreign lenders and on the currency of their loans.
The proposal has two tranches covering the US$14.4 billion owed to the bank lenders. The first tranche covers US$4.4 billion, offers a five-year maturity and 1 per cent cash interest but no payment-in-kind (PIK) or shortfall guarantee.
The second tranche covers US$10 billion, comes with an eight-year maturity and offers 1 per cent interest, and varying PIK rates depending on the options lenders choose. The PIK rates range from 1.5 per cent up to 2.5 per cent in certain years of the maturity.
fr:btimes.com.my/Current_News/BTIMES/articles/dibai/Article/
Dubai World property arm sells off Malaysia stake
DUBAI, United Arab Emirates: A property arm of struggling state conglomerate Dubai World is backing out of a plan to build luxury homes in Malaysia as it looks to shore up its finances.
The cash-strapped company’s Limitless division is selling off its stake in a partnership with Malaysia’s Bandar Raya Developments to develop waterfront land in the southern city of Nusajaya.
Limitless will generate about US$23.8 million in the deal, according to a regulatory filing on Malaysia’s stock exchange.
Limitless said in a statement Sunday that it continues “to review our business activity to reflect market conditions.”
The company’s parent Dubai World needs cash as it works to pay back $23.5 billion in debt.
fr:biz.thestar.com.my/news/story.asp?file=/2010/7/12/business/20100712090529&sec=business
Dubai Holding gets US$2bil injection
LONDON: The Dubai government has pumped US$2bil into Dubai Holding, taking control of the conglomerate’s financial restructuring, the Financial Times said yesterday.
The newspaper quoted Mohammed al-Shaibani, director of the Ruler’s Court, the body that coordinates the activities of government departments, as saying the government had already injected US$2bil into Dubai Holding and was willing to put more capital into the loss-making conglomerate.
‘I don’t want to put any more money in as the government, but I will do it as and when it’s required,’ he said. The government also expected banks to accept some of the pain, as was the case in the Dubai World restructuring, Shaibani told the newspaper in an interview.
He said banks could expect to win advisory deals as the government considered future asset sales and privatisations.
“Priority will definitely go to banks that have been very supportive – we are very loyal customers,” he said.
fr:biz.thestar.com.my/news/story.asp?file=/2010/11/17/business/7440362&sec=business
Dubai may sell parts of govt-owned companies
DUBAI: The emirate of Dubai may consider selling parts of government-owned companies as it continues to restructure those hit hard by the financial crisis, top financial officials said yesterday.
The emirate, a regional financial and trade hub, suffered a blow to its reputation a year ago when state-linked conglomerate Dubai World announced it would ask creditors for a standstill agreement on almost US$25bil in debt.
Dubai World is now on sound financial footing, Sheikh Ahmed bin Saeed al-Maktoum, chairman of Dubai Supreme Fiscal Committee, told a news conference.
In the past year, Dubai World managed to reach a restructuring deal with creditors, allowing the government to tap into improved investor confidence to issue a US$1.25bil bond in September.
Prized assets such as DP World, the Atlantis Hotel and casino operator MGM Resorts International were presented under the restructuring as potential assets that could be sold to the public to help raise cash.
There is also keen interest in other state-linked assets such as Emirates airlines and Dubai Electricity and Water Authority.
We are working on opening up the capital of leading companies to our public, he said.
Property developer Nakheel, which is trying to reach agreement on a proposed restructuring plan, was also returning to health, said Faisal Mikou, the executive vice-president of Investment Corp of Dubai.
We are making very good progress on the restructuring Nakheel’s financial and operational restructuring is going according to plan, he said. – Reuters
Nakheel plans to issue an Islamic bond to its trade creditors in the first quarter of 2011, he said. – Reuters
Despite improving balance sheets among Dubai’s state-linked companies, significant challenges remain.
In a reminder that Gulf Arab emirate’s debt troubles are far from over, financial services firm Dubai Group recently missed two payments on separate loans.
fr:biz.thestar.com.my/news/story.asp?file=/2010/11/29/business/7518722&sec=business