- Reuters – Abu Dhabi to aid Dubai “case by case” -official
Abu Dhabi, capital of the United Arab Emirates and one of the world’s top oil exporters, will “pick and choose” how to assist its debt-laden neighbour Dubai, a senior Abu Dhabi official said on Saturday. “We will look at Dubai’s commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts,” the official told Reuters by telephone. The government official declined to be identified because he is not authorised to speak to the media. “Some of Dubai’s entities are commercial, semi-government ones. Abu Dhabi will pick and choose when and where to assist,” he said.
- The New York Times – Dubai Debt Woes Raise Fear of Wider Problem
Of the many economies that gorged on debt in the boom years, Dubai stood out. In the space of a few years the emirate’s investment arm, Dubai World, racked up $59 billion in debt, borrowing to build lavish developments like a giant island shaped like a palm tree to entice celebrities like Brad Pitt, and to invest in glittery properties like the MGM Grand Casino in Las Vegas. Now that the boom has gone bust, both in Dubai and in the United States, Dubai is stuck with a glut of real estate that no one wants to buy or rent. Creditors and markets had always assumed that when push came to shove, its oil-rich neighbor Abu Dhabi would bail out Dubai. But that assumption was called into question this week, and the resulting fear that Dubai might not be able to pay its bills sent a wave of uncertainty rippling through markets just as investors thought the worst of the global financial instability was over.
- The Wall Street Journal – Much Ado About Dubai
Global markets sank sharply at the end of last week on fears that Dubai World, a subsidiary of the government of Dubai, was on the verge of defaulting on approximately $60 billion of the emirate’s $80 billion in total debt held by creditors world-wide. The rush of news stories added to the wildfire of panicky speculation, with headlines ranging from “Dubai Default Risk May be Big US Bank Problem,” to “Dubai Shows Limits of Government Rescues.” The mini-panic, however, has little to do with Dubai and everything to do with the tenuous psychology of global investors still skittish after the financial crisis that hit in the fall of 2008. The challenges that Dubai faces are both well-known and at least a year old. In the wake of the global financial crisis, Dubai’s debt was seen as one of many international soft spots, especially since most of the debt was tied to the assumptions that oil would stay above $145 a barrel, and that Dubai would continue to make the fantastic real-estate gains that had characterized the previous years.
- The Times (UK) – Dubai debt fears threaten credit crunch 2 — and RBS is exposed
The spectre of “Financial Crisis 2” continued to loom over global markets yesterday after Dubai’s revelation that it may not be able to meet its debt obligations. Stock markets in Asia and the United States fell sharply while the dollar and Japanese yen rose as investors shifted their money to their perceived safety. UK banks were also revealed to be the biggest lenders to the United Arab Emirates, which includes Dubai, with more than $50 billion owed by the Gulf state’s residents. In another blow to the beleaguered UK banking sector, the Royal Bank of Scotland emerged as the largest single loan-arranger to Dubai World, the state-owned conglomerate that sparked this latest financial crisis when it sought a standstill on its debt repayments on Wednesday.
- The Financial Times – Lex: Dubai and sell
Dubai’s woes may dent the odd bank, but aggregate corporate earnings will barely be affected. Consumers around the world could not care less. Nor does trouble in the Gulf affect other influential themes of the day such as western public and private sector indebtedness, or growth in China. So why the panic? There are sensible explanations. The first is that after a too-quick-to-be-true recovery from the biggest meltdown for generations, Dubai is a reminder the world is not out of the woods…A bit of sand in the gears will also remind investors not to ignore valuations.
- The Wall Street Journal – Worries Grow Over Gulf Rift
The United Arab Emirates central bank said Sunday it would make fresh funding available to local banks if needed, but didn’t offer specific support to Dubai, raising worries of a rift between the struggling city-state and the U.A.E.’s federal government…The central-bank move appeared aimed at boosting confidence in the country’s banking sector, which has large exposure to Dubai debt, before Monday, when banks and stock markets reopen after a long Muslim holiday. The central bank said it “stands behind” U.A.E. banks and would make available funds to local institutions, including local subsidiaries of foreign banks. But the statement pointedly didn’t mention Dubai, disappointing many market observers. Spokesmen for the Dubai government and the federal government in Abu Dhabi declined to comment Sunday.
- Bloomberg.com – Dubai May Forfeit Financial Hub for Abu Dhabi Help
Dubai, the debt-laden Gulf city- state, may lose its status as the region’s financial hub in return for a rescue package from its oil-rich neighbor Abu Dhabi, economists and analysts said. The bailout will mean eliminating financially unviable parts of the competing, state-run companies which lie at the root of the city’s at least $80 billion debt, according to Dubai-based UBS AG analyst Saud Masud. Dubai may also have to revert to specializing in trade and services, and drop its drive to become a regional banking center, said Ian Hay Davison, former chairman of the Dubai Financial Services Authority. “Abu Dhabi has financial ambitions of its own,” said Eckart Woertz, an economist at the Gulf Research Center in Dubai. “Dubai will have to focus on its core competencies. There is terrible damage to its ambitions in the financial field from how it handled this.”
- The Wall Street Journal – Dubai Debt Insurance Cost Falls
The cost of insuring Dubai’s sovereign debt against default fell Monday as investors’ concerns about the region were allayed after the United Arab Emirates central bank pledged support for the country’s local and foreign banks. It now costs $576,000 to insure $10 million of Dubai sovereign debt against default for five years, down from $647,000 at Friday’s New York close, according to data provider CMA. The cost of insuring neighboring Abu Dhabi’s sovereign debt also fell Monday. It now costs $146,000 to insure $10 million of Abu Dhabi’s sovereign debt against default for five years, down from $175,600 at Friday’s close.
- CNBC – Dubai World to Restructure About $26 Billion of Debt
Dubai World said it would try to restructure about $26 billion of debt, far less than the nearly $60 billion in total liabilities that the Dubai government’s investment arm had as of August. … “Creditors need to take part of the responsibility for their decision to lend to the companies,” said Abdulrahman al-Saleh, director general of Dubai’s Department of Finance.
- The Financial Times – Lex: Dubai
The panic provoked by last week’s debt standstill request from Dubai World and property arm Nakheel has come full circle. On Monday, when the main Gulf stock markets reopened, Nasdaq Dubai fell more than 7 per cent and the Abu Dhabi stock exchange more than 8 per cent. Investors, already shocked by Dubai’s confirmation it would not guarantee the public companies’ debt, were told trading had been halted on $5.25bn of Nakheel’s bonds. The problem is that global investors see the borrowers’ woes as a microcosm of the emirate’s. The latter’s failure to communicate decisively and promptly with the capital markets on which it relies has dented its chances of becoming a credible financial services hub over the coming decade. Still, the United Arab Emirates central bank’s liquidity support for local and foreign lenders should give regional banks a lifeline for now. Although the British banks most heavily exposed to the UAE will not be derailed by the standstill, the same may not be true of regional lenders, which have disproportionately large Dubai exposure – in the case of Abu Dhabi’s banks, about a third of their assets, Morgan Stanley estimates. Local banks are already paying more for funding and will do their best to wriggle out of making big impairments on property lending.
- The New York Times – Dubai Crisis Tests Laws of Islamic Financing
The debt crisis in Dubai is about to test one of the fastest-growing areas in banking, Islamic finance, and put the city-state’s opaque judicial system on trial, according to bankers and experts in finance. Many loans and bonds that comply with Shariah, or Islamic law, were issued in recent years by Dubai World, the investment arm of Dubai, and other Persian Gulf companies as oil-rich Middle East nations increased spending, and the global credit crisis fed debt investments in emerging markets. But, because there have been few major defaults in this market, there is little precedent for arbitrating the unique terms of these instruments.
- The Times (UK) – Fear of creditor wipe-out as Dubai jettisons conglomerate
Dubai World, the state-owned conglomerate, was effectively abandoned to its fate by the Emirate’s Government yesterday despite previous assumptions that Dubai would stand behind the company. That has raised the likelihood that lenders to Dubai World, which has liabilities of $60 billion, could lose billions of dollars. Dubai World will be restructured and some of its assets … are likely to be sold to pay down debt. However, there is uncertainty over the robustness of creditor protection under Dubai law and lenders are understood to be concerned that they will get little or none of their money back. Analysts at RBC Capital Markets said: “The bottom line is that creditors have almost no legal legs to stand on to maximise recovery values.”
- The Wall Street Journal – Dubai World May Have to Sell Trophy Assets
Nearly six months into its corporate restructuring, Dubai World, this city-state’s flagship conglomerate, has mostly resisted selling off its trophy case of assets, from ports around the world to luxury hotels and a vintage cruise liner. After last week’s announcement from Dubai that it is requesting a delay in Dubai World debt payments, the company may have less room to avoid a sale of some of its portfolio. In recent years, the state-owned company diversified well beyond its roots in port operations. Many of those investments—in international property, entertainment and tourism—are now worth a fraction of what Dubai World bought them for, at the height of an oil-fired regional boom. And a hasty, distressed sale of assets could make it more difficult to wring the most value out of its portfolio. “It won’t want to give an impression that there’s a fire sale,” said Fahd Iqbal, Persian Gulf strategist for Egyptian investment bank EFG-Hermes. A spokesman for Dubai World declined to comment. A person familiar with the situation said that it’s “too early to say” what Dubai World’s view on asset sales would be, after last week’s debt announcement. “But if someone came along with a fair value offer, this would be considered at the right price,” this person said.
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