Burned by Dubai, Mobius joins chorus of doom after property bust

Thursday, 4 Apr 2019


Mark Mobius is worried about the frenzy of construction that’s adding to the existing glut in Dubai real estate.

DUBAI: Three years ago, Mark Mobius saw his luxury apartments in Dubai go up in flames. While the suites have by now been restored to their old splendor, the investor has something else to worry about: the frenzy of construction that’s adding to the existing glut in real estate.

The downturn “will get much worse from here,” said Mobius, a pioneer in emerging-market investing, adding he’d hold off on buying more property.

“I would probably want to wait until there’s a real slump when all this new building comes in and people are really hurting to sell.”

Prices and rents have already dropped by as much as a third in the past five years during what S&P Global Ratings has called the property market’s “long decline.”

The slump will run for another 12 to 18 months because government measures to stimulate the economy -- including granting long-term visas which benefit the affluent and people with specialized expertise -- won’t be enough to revive demand, said Lahlou Meksaoui, a Dubai-based analyst at Moody’s Investors Service.

Mobius recalls how he watched on television from Singapore as revelers in Dubai rang in 2016 with fireworks shooting off the iconic Burj Khalifa.

Just steps away from the world’s tallest building, flames were engulfing Address Downtown and the two luxury apartments he owns in the 63-story tower.

Dubai, one of seven of the United Arab Emirates, lives and dies by real estate. When a property bubble burst a decade ago, it needed a $20 billion rescue from neighboring Abu Dhabi to pull back from the brink of default.

Since prices peaked in 2014, the $108 billion economy had a softer landing as it transitioned from boom to bust.

Early signs of a bottoming out in the property sector even prompted Morgan Stanley to “double-upgrade” U.A.E. stocks in February. An index tracking the city’s real-estate and construction stocks climbed 5.8 percent in the first three months of the year, snapping five quarters of losses.

But Mobius said shares of Dubai’s developers aren’t cheap enough. While the World Expo 2020 fair will reinforce the city’s position on the world map, it won’t be enough to revive the emirate’s property sector unless the government relaxes its immigration policies, he said.

“That’s where you’re going to have real problems,” he said.- Bloomberg

Read more at https://www.thestar.com.my/business/business-news/2019/04/04/burned-by-dubai-mobius-joins-chorus-of-doom-after-property-bust/#IxMsdcbKXA628xpI.99

Mark Mobius eyes Gulf stocks

Mark Mobius eyes Gulf stocks

3 Dec 2009, 1215 hrs IST, Bloomberg
SINGAPORE: The worst plunge in Dubai stocks in a year and record retreat for Abu Dhabi are luring Mark Mobius to “bombed out” Emaar Properties PJSC while investors say phone companies, airlines and port operators have become bargains.

Dubai isn’t likely to go bankrupt and will be “bailed out,” Mobius, who oversees more than $30 billion of developing-nation assets as chairman of Templeton Asset Management, told Bloomberg Television in Hong Kong on Wednesday. “From a longer-term perspective, you’ve got to look at these really bombed out sectors.”

Emirates Telecom, the biggest operator in the United Arab Emirates, is attractive after falling to its cheapest level since July, said hedge-fund firm Gulfmena Alternative Investments. Dubai-based courier Aramex will rally after a 7.4% drop the past two days left shares at a 32% discount to the average price-to-earnings ratio since 2006, according to Duet Mena.

Abu Dhabi’s ADX General Index sank 12% and the Dubai Financial Market Index fell 13% since Dubai said November 25 it would seek a “standstill” agreement on debt owed by state-run Dubai World. The measures are now the cheapest after Nigeria’s among 71 benchmark indexes tracked by Bloomberg. Dubai-based Emaar, the UAE’s largest developer, plunged 19%.

“I particularly like companies like Emaar, property companies,” said Mobius. “There are many of those properties that are cash-flow rich, that are doing quite well. Not all of the properties are in trouble. If you ever tried to stay at a hotel in Dubai you realise what the prices are, which should come down, but even with half the prices that they’re charging, they can make money.”

STOCKS REBOUND

Qatar’s DSM 20 Index led gains globally today, climbing 5.3%, as Commercial Bank of Qatar, the Gulf country’s second-biggest bank by assets, said it has no exposure to Dubai World or its unit Nakheel. Dubai and Abu Dhabi markets are closed until December 6 for the UAE National Day. The MSCI Emerging Markets Index rose for a third day, extending its longest rally in three weeks.

The cost of credit-default swaps protecting Dubai debt against a government default fell 9 basis points to 451, extending the steepest decline in nine months on Tuesday, according to prices from CMA Datavision. The contracts decline as perceptions of credit quality improve, with one basis point equivalent to $1,000 a year to insure $10 million of debt.

ARAMEX, AIR ARABIA

Mobius predicted on November 27 that Dubai’s attempt to delay debt payments may spur a “correction” in developing-nation equities, adding that a 20% slide is “quite possible.” “Now as the dust settles, a few companies in the UAE stand out,” said Rabih Sultani, a fund manager at Duet Mena in Dubai, a unit of Duet Group, which oversees about $2.1 billion. Sultani said he favours shares of Emirates Telecom, known as Etisalat, Aramex and Air Arabia, the UAE’s largest low-cost carrier. While Mobius expects Dubai property shares to lead a recovery, some areas in China and India may become the “next Dubai” because of too much spending and borrowing, Mobius said, citing the cities of Shanghai and Mumbai.

“It wouldn’t be a country-wide situation, isolated pockets of disaster because of over-spending and over-leveraging,” Mobius said. “It’s not going to happen tomorrow but with the kind of money supply that’s coming in, with the IPO activity that we’re seeing, that’s definitely in the cards.”

http://economictimes.indiatimes.com/markets/global-markets/Mark-Mobius-eyes-Gulf-stocks/articleshow/5293887.cms

Dubai bites the bullet on debt

Dubai bites the bullet on debt
Dubai has finally entered a treatment facility voluntarily.

By Una Galani, Breakingviews.com
Published: 6:12AM GMT 26 Nov 2009

Dubai World, one of the emirate’s biggest holding companies, has shocked creditors by asking for a standstill on the $60bn of debt attached to its entire portfolio, which includes ports operator Dubai Ports World, investment vehicle Istithmar and Nakheel – the property developer responsible for one of the Gulf’s most iconic sights: a series of man-made palm islands. If the emirate’s request is granted that would amount to a technical default.

Though Dubai’s troubles had been widely heralded, investors had been expecting a timely repayment of bonds. Sheikh Mohammed bin Rashid al-Maktoum even recently told critics of the emirate’s ability to meet its financial commitments to “shut up”. No surprise then that the request for a standstill from Dubai World until May 2010 sent the price of Dubai’s five year credit default swaps leaping to 420 basis points – up 100 basis points. That is still less than half the high Dubai’s CDS reached in February when confidence in the emirate was at an all time low.

Dubai has been smart to prove that it can still raise money. At the same time as asking creditors for more time, Dubai announced it had raised a further $5 billion tranche of its $20 billion emergency support bond from two government-owned banks in Abu Dhabi. Two weeks ago, the emirate also placed $2 billion worth of Islamic sukuk bonds with private investors, although those proceeds were not raised for distressed entities.

So why isn’t Dubai putting its hand in its pocket to help Dubai World meet its most pressing maturity, namely Nakheel’s $3.5 billion sukuk due mid-December? One reason could be because Dubai World faces at least a further $2.2 billion of maturities in the coming six months and more after that. Deloitte’s Aidan Birkett, who will lead the restructuring effort, will be one of the first outsiders to see the true scale of the problem that lies within.

Creditors might not like having to grant concessions, but anyone with a long term interest in Dubai should be pleased that the emirate is biting the bullet. Authorities last week took the decision to remove some of the key architects of modern Dubai from their positions. Now the debt laden emirate appears to have finally realised that it can’t pay off all of its debts without a serious financial restructuring. The first step to a cure is admitting there’s a problem.

Dubai: what the immediate future holds

Dubai: what the immediate future holds
Until last Wednesday, most investors saw Dubai as an attractive tourist destination, a regional financial centre and an example of what bold and visionary leadership can achieve.

By Mohamed A El-Erian
Published: 12:23AM GMT 29 Nov 2009

Some worried that Dubai's impressive achievements came with a debt burden that would prove difficult to sustain after last year's financial crisis.

This weekend, investors around the world are united in wondering "what does Dubai mean for me?"

Dubai has triggered local, national, regional and global forces that will play out in the weeks ahead.

At the local level, the standstill is an explicit recognition that the Emirate's debt and leverage levels cannot be sustained in what, at PIMCO, we have called the "new normal". The question for Dubai is now two-fold: can an orderly extension of debt payments be achieved; and how will this impact the risk premium that is attached to other economic and financial activities in the Emirate?

The key issue at the national level is how Abu Dhabi, the largest and richest of the seven UAE Emirates, will react. Here, it is a question of willingness. The leaders of Abu Dhabi must strike that delicate balance between using enormous wealth to support Dubai and ensuring appropriate burden sharing among those that repeatedly failed to heed Abu Dhabi's past warnings about the excesses in Dubai.

The regional dimension is captured by a word familiar to investors in emerging markets: "contagion". The immediate reaction of almost all markets (and too many commentators) is to lump together countries in the region that have very different characteristics. Witness how market measures of risk have surged for all the oil exporters in the region even though they share none of Dubai's debt and leverage characteristics.

At the global level, the Dubai announcement serves as a catalyst to take the froth off expensive financial markets. For the last few months, massive injections of liquidity (primarily by the US), aimed at limiting the adverse impact of the financial crisis on employment, have turbo-charged financial market valuations rather than make their way to the real economy. While many have worried about the generalised over-extension of equity markets, most have hesitated to take money off the table as there did not appear to be a catalyst to break the general "trend is your friend" mentality. Dubai is that catalyst.

So, what next?

First, it will take time to sort out the Dubai situation. Inevitably, this is an uncertain and protracted process that involves both on- and off-balance sheet exposures. It will cast a cloud not only on companies in the Emirate itself but also on institutions that have large exposures there, especially in the banking and real estate sectors.

Second, the immediate indiscriminate sell-off in regional (and emerging market) names will, over time, give way to greater differentiation based on economic and financial realities. Those with strong fundamentals will recover (including Abu Dhabi, Brazil, Kuwait, Qatar and Saudi Arabia) while others, including countries with large deficits and debt burdens in eastern/central/southern Europe, may come under more pressure.

Finally, and most importantly, Dubai serves as a warning to those that were quick to find comfort in the sharp market rally of the last few months. Since the summer, the appreciation of risk assets has been driven predominantly by artificial liquidity injections rather than fundamentals. The Dubai announcement is a reminder that a flood of government-induced liquidity cannot mask all excesses, all the time.

Investors should treat last Wednesday's announcement as an illustration of the lagged financial effects of the global financial crisis. The Dubai situation is no different than that facing commercial real estate in the US and UK.

Let Dubai be a reminder to all: last year's financial crisis was a consequential phenomenon whose lagged impact is yet to play out fully in the economic, financial, institutional and political arenas.

Mohamed A El-Erian is CEO and co-CIO of PIMCO, the investment management firm

http://www.telegraph.co.uk/finance/economics/6678194/Dubai-what-the-immediate-future-holds.html

Dubai: an emirate in crisis

DUBAI facts

Ruled by Sheikh Mohammed bin Rashid Al-Maktoum (above), who has embraced the extravagance of his emirate

16bn  Ruler's personal wealth – world's fourth-richest royal

1.7m Population

240,000 Oil production per day

State company is Dubai World, a property-focused investment group with a $59bn debt problem

Government holding companies bought large stakes in HSBC, Deutsche Bank and US retailer Barneys

Key London assets include the Adelphi, on the Strand, and the Grand Buildings in Trafalgar Square

The ruler's slogan is "Leader, equestrian, poet"



ABU DHABI facts

Ruled by Sheikh Khalifa bin Zayed al-Nahy (above), who has taken a reserved and anonymous stance in his
oil-rich state

$21bn Ruler's personal wealth – world's second-richest royal

1.3m Population

2.7m Oil production per day

State company is the Abu Dhabi Investment Authority, the world's largest sovereign wealth fund with assets worth more than $250bn

The company bought 4.9pc of Citigroup for £7.5bn in 2007 and is thought to be the world's second-largest institutional investor behind Bank of Japan

Key London assets include the ExCel exhibition centre in the Royal Docks and No1 Knightsbridge Green, close to Harrods

Its flagship project is the Gulf version of the Peggy Guggenheim Museum, which is set to open in 2011

Dubai’s Investment Troubles Leave Markets Unsteady

Dubai’s Investment Troubles Leave Markets Unsteady

By BETTINA WASSENER
Published: November 27, 2009

HONG KONG — Stock markets fell across Asia on Friday as investors were spooked by news this week that Dubai World, the emirate’s main investment vehicle, was seeking to suspend repayments on all or part of its $59 billion in debt.

Dubai, in debt from financing a building boom, is seeking to defer payments.

The Hang Seng index in Hong Kong fell 4.8 percent and South Korea’s key market gauge, the Kospi, dropped 4.7 percent. The Nikkei 225 index in Japan and the Taiex in Taiwan both sagged 3.2 percent.

European markets, however, were flat, with the CAC 40 in Paris and the FTSE 100 in London turning a few points higher. The three major European markets all fell more than 3 percent on Thursday. Wall Street is expected to open sharply lower as investors there try to play catch up. American markets will be open for a half-day, after being closed Thursday for Thanksgiving.

The dollar gained against the euro, and crude oil prices fell $3.68 to $74.28 in premarket trading in New York. Treasury prices rose.

In the Asian markets, banks and construction firms were among the biggest losers, even as many companies issued statements declaring they had little or no direct exposure to the Dubai World debt.

European banks may be hit hardest if Dubai World cannot meet its obligations, according to a research note Friday from Credit Suisse. The Swiss bank estimated that European banks could have a total exposure of 13 billion euros.

Bloomberg News, citing a report by JPMorgan Chase and Company, said that the Royal Bank of Scotland Group underwrote more loans than any institution to Dubai World, the state company seeking to reschedule debt, while HSBC Holdings had the most at risk in the United Arab Emirates.

RBS, the largest U.K. government-controlled bank, arranged $2.3 billion, or 17 percent, of Dubai World loans since January 2007, JPMorgan said in the report, citing Dealogic data.

The turmoil was touched off by Wednesday’s announcement from Dubai, one of the seven members of the United Arab Emirates, that it was asking banks to allow Dubai World to suspend its debt repayments for six months. European markets reacted negatively to the news Thursday.

Dubai’s move — the global high-finance equivalent of a homeowner asking the bank to allow six months of skipped mortgage payments, presumably because the homeowner was out of cash — sowed fear of a contagion of instability that could roil markets that are only now recovering from the near cataclysm of the last year.

“This has sent shockwaves through the markets, even though the problems in Dubai have been known about for two years,” Emil Wolter, a Hong Kong-based strategist the Royal Bank of Scotland, said by phone from Paris.

“But it is not the trigger for a brand-new crisis. Yes, the magnitude of the situation is dramatic for Dubai. But Dubai is not America — and a property crisis in Dubai will not cause the same global crisis as a property crisis in the States.”

Some market experts noted, for instance, that while banks that have lent money to Dubai World could suffer significant losses if the company were to default on all or part of its debt, worries about the sovereign debt of oil-rich Middle Eastern countries were unfounded.

Paul Schulte, head of multi-strategy research at Nomura in Hong Kong commented in a note on Friday: “Dubai was a carbon copy of Thailand’s disastrous foray as an ‘international financial center’ in the 1990s. Happily, the U.A.E. has oil. Thailand did not.”

Still, the news had companies scrambling Friday as their stock prices dropped.

In Hong Kong, HSBC and Standard Chartered — British banks that both have large operations in the Middle East — fell 7.6 percent and 8.6 percent, respectively. Both declined Friday to comment on what exposure they had to Dubai World. Standard Chartered said it would issue a statement “if there was anything material to disclose.”

Mr. Schulte said he believed the two banks had “insignificant exposure to Dubai.”

Chinese banking giants including ICBC, Bank of China and Bank of Communications said they had no exposure, Reuters reported, but their shares all dropped.

In Japan, Sumitomo Mitsui Financial Group fell 3.7 percent, Mizuho Financial dropped 3.9 percent and Mitsubishi UFJ 2.2 percent, though none would say how large their exposures were, according to Bloomberg News. Taiwan’s fourth-ranked Mega Financial said it had exposure to Dubai World loans and was trying to find out how much.

Real estate and construction firms of varying sizes were also scrambling to assess the impact. In India, for example, Reuters reported that the chairman of realty firm Omaxe said the company had an exposure of 450 million rupees, or $9.6 million, through a joint venture with Dubai World’s property developer unit Nakheel, and was looking to exit the project.

And the South Korean builder C&T Samsung said it had stopped work on a $350 million bridge in the city after a unit of Dubai World halted payments, according to Bloomberg News.

Like many Western consumers during the good times, Dubai gorged on debt and borrowed too much to finance a building boom that has gone bust in the downturn.

“Dubai was fairly much the worst example of overextension. It had the worst debt per capita in the world by far,” Christopher Davidson, an expert in Gulf politics at Durham University in Britain, said Thursday. “I would like to put it down as a really enormous white elephant that doesn’t have much in common with the regular economy of a regular state.”

When credit markets froze last year, Dubai, like Iceland, found itself overextended. But Dubai, which has little oil, was backed by its Arab emirate neighbors, especially oil-rich Abu Dhabi — or so investors had assumed.

Saud Masud, head of research at UBS in Dubai, said Thursday that negotiators would feel pressure to reach some kind of deal to present to the markets before trading in the region resumes next week after the Eid holiday. The Dubai government’s total debt is estimated at about $80 billion, of which, Mr. Masud estimated, about two-thirds is held by local investors.

Mr. Schulte of Nomura commented in his note that, in his view, “it is not a matter of when but at what price Abu Dhabi will bail out Dubai.”

Mr. Wolter of RBS said he too believed Abu Dhabi would have no choice but to ultimately come to Dubai’s rescue. Until that becomes clear, though, he said, markets would remain extremely nervous.

http://www.nytimes.com/2009/11/28/business/28markets.html?ref=global

Asian Stocks Fall Amid Dubai Fears

Asian Stocks Fall Amid Dubai Fears

By THE ASSOCIATED PRESS
Published: November 27, 2009
Filed at 7:22 a.m. ET

LONDON (AP) -- European stock markets regained their poise Friday but Asia fell sharply as investors weighed the impact that Dubai's trouble with $60 billion in debt would have on the global financial and economic recovery.

Sentiment among investors has been hit hard by Wednesday's news that Dubai World, a government investment company, has asked creditors if it can postpone its forthcoming payments until May. That stoked fears, mainly in Europe on Thursday, of a potential default and contagion around the global financial system, particularly in emerging markets.

Asian stocks were particularly badly hit as they played catch-up following the big losses in Europe in the previous session. Hong Kong's Hang Seng closed 1,075.91 points, or 4.8 percent, lower at 21,134.50, while South Korea's benchmark plummeted 4.7 percent to 1,524.50.

In Europe, the FTSE 100 index of leading British shares was down 14.18 points, or 0.3 percent, at 5,179.95, while Germany's DAX fell 13.08 points, or 0.2 percent, to 5,601.09. The CAC-40 in France was 15.02 points, or 0.4 percent, lower at 3,664.21. On Thursday, Europe's main indexes slid over 3 percent, with banks, especially those thought to have exposure to Dubai such as Barclays PLC, HSBC PLC and Standard Chartered PLC, particularly badly hit.

All eyes in Europe will be on Wall Street, which was closed Thursday for the Thanksgiving Holiday. Expectations are that it will open down but that the selling won't turn into a rout -- Dow futures were down 236 points, or 2.3 percent, at 10,206 while the broader Standard & Poor's 500 futures slid 31.1 points, or 2.8 percent, at 1,077.80.

''It is likely to take at least a few days before the implications of the impact of a possible default from Dubai are properly digested but for the present it seems that the market is seeing this negative news as a blow to the global recovery but not one that will push it off course,'' said Jane Foley, research director at Forex.com.

Across all markets, there is a growing awareness that investors may use the upcoming year-end to lock-in whatever profits have been made over the last 12 months.

''Market cynics have been looking for a correction in the equity market, which has blazed the trail in the past seven months,'' said David Buik, markets analyst at BGC Partners.

''However they have been unable to find sufficient reasons to nail their flag to the mast, by taking profits, whilst alternative asset classes were unattractive options -- well they certainly found an excuse yesterday with the Dubai debt debacle,'' he added.

Investors were also keeping a close eye on associated developments in the currency markets after the dollar slid to a new 14-year low of 84.81 yen.

However, the dollar climbed back off its lows to 86.46 yen amid mounting expectations that the Bank of Japan may intervene in the markets by buying dollars or selling yen after Japan's finance minister Hirohisa Fujii said he was ''extremely nervous'' about the movements in the yen and that the ''market had moved too far in one direction.''

On Thursday, the Swiss National Bank reportedly intervened to buy dollars to prevent the export-sapping appreciation of the Swiss franc. That seems to have worked -- for now, at least -- as the dollar has moved back above parity, trading 0.9 percent higher at 1.0118 Swiss francs.

The British pound has also been battered amid fears about the exposure of Britain's banks to the region. The pound was down 0.9 percent at $1.6375.

Another currency losing some of its shine was the euro, which fell 0.8 percent to $1.4906 -- in times of uncertainty the dollar is considered to be more of a safe haven currency. Investors are also concerned about the exposure of European banks to Dubai.

Elsewhere in Asia, Japan's Nikkei 225 stock average fell 301.72 points, or 3.2 percent, to 9,081.52 while Australia's index dropped 2.9 percent. China's main Shanghai stock measure was off 2.4 percent.

Oil, meanwhile, tracked developments in stock markets and benchmark crude for January delivery fell $3.79 to $74.17 a barrel in electronic trading on the New York Mercantile Exchange.

--------

AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.

http://www.nytimes.com/aponline/2009/11/27/business/AP-World-Markets.html

Dubai is just a harbinger of things to come for sovereign debt

Dubai is just a harbinger of things to come for sovereign debt

By Jeremy Warner
Economics
Last updated: November 27th, 2009


Watch out. This may be just the beginning. In the scale of things, the debt problems of Dubai are little more than a flea bite. Dubai’s sovereign debts total “just” $80bn, which counts for nothing against the trillions being raised by advanced economies to plug fiscal deficits.


Dubai has been a one-way ticket of economic expansion until recently

Small wonder, though, that this minor tremor has sent such shock waves around the wider capital markets. The fear is that threatened default in this tiny desert kingdom is just a harginger of things to come for government debt markets as a whole. According to new estimates by Moody’s, the credit rating agency, the total stock of sovereign debt worldwide will have risen by nearly 50 per cent between 2007 and 2010 to $15.3 trillion. The great bulk of this increase comes not from irrelevant little states like Dubai, but from the big advanced economies – America, Europe, and Japan.

Perversely, they are for the time being beneficiaries of the “flight to safety” that trouble in Dubai has sparked. Government bond yields in the major advanced economies have fallen in response to the crisis in the Gulf. If experience of the banking crisis, when investors removed their money from one bank only to find that the one they had put it into looked just as dodgy, is anything to go by, this effect will not last.

Up until now, markets have assumed that the ruinous fiscal cost of addressing the financial and economic crisis was probably just about affordable to the major economies. That view may be about to be challenged.



http://blogs.telegraph.co.uk/finance/jeremywarner/100002318/dubai-is-just-a-harbinger-of-things-to-come-for-sovereign-debt/

Dubai's financial crisis: a Q&A

Dubai's financial crisis: a Q&A
Dubai, the gulf emirate that has grown explosively over the last decade, is now at the centre of markets' attention on fears that it could struggle to repay its debt.

By Richard Spencer in Dubai
Published: 8:55AM GMT 27 Nov 2009

Comments 2 | Comment on this article

Towering high above the Dubai skyline, Burj Dubai, the world's tallest man-made construction, edges closer to completion

Dubai ruling family has moved to calm investors' fear over its economic stability after stock markets tumbled around the world. 

Q. Where did Dubai go wrong? I thought it was in the "oil-rich Gulf"?

A. Dubai is part of the United Arab Emirates, seven city-states which have separate ruling families, separate budgets, but security, immigration and foreign policies in common. Abu Dhabi has nearly all the UAE's oil. To keep up, Dubai from the 1950s on diversified its economy into ports, trade, services and finance, largely successfully. But its liquidity-fuelled real estate and tourism binge in the last decade may have been one step too far.


Q. What is the extent of its problems?

A. The emirate has said it has $80bn of debts, though some analysts say the true figure could be double that. Dubai World, the state-owned holding company whose bail-out plans triggered the current crisis, has liabilities of about $60bn, though only part of that is debt. The main problem is its real estate subsidiary Nakheel, which has huge bonds coming due, including an Islamic bond for $3.5bn in December. It appears to have little cash flow to meet payments - as well as relying on debt, it also sold most developments off-plan, with new developments now on hold.

Q. The big market crash after Lehman Brothers folded was more than a year ago. Why has Dubai only just been hit?

A. The property crash hit Dubai at the time - house prices fell 50 pc in six months. Nakheel was known to be in trouble. But investors assumed that as a state-owned company it would not default on its debt. The government refused to issue detailed statements of how it was to handle Dubai World's debt problems, and rounded on those who said that the crash had undermined Dubai's development model.

This encouraged a belief that a rescue package was already in place, probably funded by Abu Dhabi. The statement on Wednesday that the government was asking for a six-month standstill on repayments implied the rescue was in doubt.

Q. Why hasn't Abu Dhabi come to Dubai's aid? It has the world's largest sovereign wealth fund.

A. Abu Dhabi has, via the federal central bank, bought one $10bn bond issued by the Dubai government earlier this year, and, via its own banks, bought another $5bn bond this week. But the latter came with a rider that it was not to be used for the Dubai World bail-out. This raises two questions: what are the other debts for which it is to be used? And how is the Dubai World debt to be met, even after the six-month delay, if Abu Dhabi will not fund the rescue package?

Q. What about other Dubai companies? How are they doing?

A. Dubai World owns DP World, the successful ports operator which bought P&O. Other arms of the Dubai government, and the ruling family's directly owned holding companies, also own successful companies such as Emirates Airlines and Jumeirah Hotels, as well as stakes in buildings and businesses around the world, including the London Stock Exchange. But the emirate's lack of transparency and relatively untested financial legal system means that no-one knows if these can be demanded as collateral against Dubai World and other government debts.

Q. Nevertheless, exposure of western banks to the debt seems quite small compared to the trillions of dollars to which we have become accustomed. Why the panic?

A. At the most basic level, fears that exposed banks will have to write down losses, and that both Dubai and Abu Dhabi may have to sell worldwide assets, has hit prices everywhere. At an "animal spirits" level, the disclosure of significant unforeseen problems in Dubai has refocused attention on where else might have hidden "black holes". The health of sovereign debt worldwide, already seen as the major financial issue for the next decade, is also being reexamined.

Q. Can Dubai survive?

A. Dubai is still seen as the premier place to do business in the Middle East and beyond. It is a preferred base for not just Arab but Pakistani, Iranian and even Indian businesses, due to the wider region's political uncertainty. Its reputation for liberal attitudes helps. But events this week have damaged its reputation for economic competence, which the emirate's rulers will now have to work hard to restore.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6668281/Dubais-financial-crisis-a-QandA.html

Dubai debt fears: experts react

Dubai debt fears: experts react
Financial markets have been rattled on fears that Dubai could default on its debts after one of the Government's leading companies asked for a standstill on its debt.

Published: 6:41AM GMT 27 Nov 2009


Asian stocks fell for a second day on Friday, with the Nikkei 225 down almost 3pc and markets in Hong Kong and Australia all weaker. The FTSE 100 fell 3.2pc on Thursday, matching declines across European markets.

Mark Mobius, Chairman of Templeton Asset Management:

Dubai debt worries grip financial markets “If Dubai has to default, that could start a wave of defaults in other areas. This may be the trigger to allow for the market to take a rest and pull back.”

Nader Naeimi, a strategist AMP Capital Investors in Sydney:

“People are worried about the contagion effect from Dubai. Events like this bring back all the bad memories from the global financial crisis.”

Mitul Kotecha, head of global foreign-exchange strategy at Calyon in Hong Kong:

“Dubai has prompted a wave of risk aversion globally. This might prompt a short sell-off in the won but I think that’s what it will be. It’s not going to be a huge fallout because Asia looks more solid in terms of fundamentals.”

Francis Lun, general manager of Fulbright Securities in Hong Kong

"The panic button's been hit again."

Robert Rennie, strategist at Westpac Global Markets Group

"This an important reminder that the credit crisis is forgotten but not gone,"

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/6667415/Dubai-debt-fears-experts-react.html

Dubai default fears rock markets

Dubai default fears rock markets
Global markets had their biggest collective fright since the chaos of the financial crisis as fears that Dubai could default on its debt gripped investors.

By Louise Armitstead
Published: 8:59PM GMT 26 Nov 2009

A metro train passes by Jumairah Lake Towers in Dubai.
Investors are worried that the state could default on its debt
Photo: AP Photo/Kamran Jebreili)

The FTSE 100 suffered its worst one-day fall since March closing down 3.2pc. Companies with big Middle Eastern shareholders led the rout, on the back of concerns that the high-rolling emirate would be forced to sell stakes to raise capital. Barclays Bank tumbled 7.9pc and the London Stock Exchange fell 7.4pc.

There were similar scenes across European stock markets with the French CAC-40 down 3.4pc and the German DAX index down 3.3pc. In America, markets were closed for the Thanksgiving holiday, but electronic trading of the benchmark S&P 500 equity futures contract showed a potential drop on Wall Street of 2.2pc.

On Wednesday, Dubai World, the government investment company behind some of the emirate's most ambitious projects, said it was seeking to delay repayment on a tranche of its debt.

The company has $60bn (£35.9bn) 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. It also owns DP World, the ports operator that bought P&O Ferries. Nakheel is due to make a $3.52bn Islamic bond repayment, plus charges, on December 14. The company also unveiled a restructuring programme, to be headed by Aidan Birkett, Deloitte's managing partner for corporate finance.

Traders feared that the request for a six-month standstill was a sign that the Dubai Government was struggling with its other debts – and that the full impact of the financial crisis globally may not yet be over.

British bank stocks, that are among the most exposed in the world to the Middle East, were hard-hit. Royal Bank of Scotland slumped 7.75pc, Lloyds Banking Group lost 5.75pc and HSBC fell 4.4pc – all three are among nine banks who were bookrunners on an outstanding $5.5bn syndicated loan to Dubai World in June 2008.

HSBC's interim accounts showed that the bank had a $15.9bn exposure to the whole of the United Arab Emirates.

The concerns for UK banks also hit sterling, which fell to its weakest point in a month against the euro and a basket of currencies, while gilt futures leapt to a six-week high, propelled by renewed fears about credit quality.

Property shares fell sharply amid concerns of a fire sale of Dubai's UK assets, which include the Grand Buildings in London. Dubai has also been a major buyer of UK property.

Land Securities and British Land both shed over 3pc. Similarly construction companies were down including Balfour Beatty and WS Atkins, who are involved in key projects in the Middle East, including the Dubai Metro.

The confidence in emerging markets was hit. Analysts at Merrill Lynch said: "The risk of corporate default in Dubai clearly shows that contagion risks have not disappeared and that perhaps the market has turned a little complacent about risk.

http://www.telegraph.co.uk/finance/businesslatestnews/6664913/Dubai-default-fears-rock-markets.html

Is this bye-bye Dubai?

Is this bye-bye Dubai?
Dubai dazzled the world with its extravagance and excess. Now it wants to defer its debts. What went wrong, asks Richard Spencer.

By Richard Spencer
Published: 7:52AM GMT 27 Nov 2009

The brief statement was short but, in the words of one banker, desperate. "Dubai World intends to ask all providers of financing to Dubai World and Nakheel to 'standstill' and extend maturities until at least 30 May 2010."

In a nutshell, the government was asking banks to let two of Dubai's most famous companies hold off on their mortgage payments. Since they are state-owned, the announcement suggested the city itself was in trouble: governments aren't supposed to default on their debts, and when they do – as Argentina did in 2001 – it causes chaos around the world.

Yesterday, the creditors didn't know whether to laugh or cry. On the one hand, this is an undoubtedly serious situation. Western banks, and the construction firms that built those castles in the sand, are exposed to serious amounts of money. Dubai's total government owings are officially $80 billion, unofficially twice that, and the cash flow to pay that back is a mystery.

More to the point, confidence had returned to the city's dealings, its companies were rehiring, precisely on the same assumptions that have seen rising property prices in London and rising stock markets everywhere. The crisis was over, meltdown averted, and growth was back.

But if Dubai's revival turns out to be fake, perhaps the rest is, too?

Yesterday, share prices around the world fell as the news was absorbed. One analyst asked whether this was the "new Lehman brothers".


http://www.telegraph.co.uk/news/worldnews/middleeast/dubai/6667851/Is-this-bye-bye-Dubai.html