The Dubai debt saga has shaken global investors since the emirate’s shock Nov. 25 announcement that it sought a standstill on Dubai World debt as it restructured the sprawling state firm, which builds and operates everything from ports to luxury flats.

Nakheel, the developer at the centre of Dubai’s debt crisis, added to already battered sentiment on Wednesday after its financial statements showed liabilities jumping 7 percent in the first half to a loss of more than $3.6 billion.

While the Dubai government has tried to ring-fence profitable firms from the $26 billion restructuring at Nakheel’s parent, Dubai World, its debt woes have led to credit downgrades for all government-linked firms amid investor fears that state aid would not be forthcoming in times of trouble.

Ratings agencies said such downgrades could lead to an accelerated payment clause for the $2 billion debt of Dubai’s power and water provider, though a DEWA official dismissed the report as speculation. Adding to confusion among investors, Dubai’s finance chief said on Tuesday the Gulf business hub would need more than six months to restructure Dubai World. A banker close to discussions between Dubai World and its creditors said the firm had yet to show them a proposal.

Underscoring the grim mood, a group representing a potentially blocking minority of holders in Nakheel’s bond has written to Dubai World rejecting a standstill, a source familiar with the matter said on Tuesday. “Investors, especially foreign institutions, want a strong statement from Dubai officials that they’ve found a clear way to help these companies,” said Samer al-Jaouni, General Manager of Middle East Financial Brokerage Co.

“There’s no reason to buy back into the market without having a clear picture on what’s going on. Confidence has been lost.” Dubai’s stock index tumbled to a 32-week low falling 5.9 percent at 0640 GMT with construction and real estate companies all down by the daily limit.

Asia-focused bank Standard Chartered, which is one of Dubai World’s creditors, said any losses it suffers in Dubai were unlikely to be material. Its shares have fallen 12 percent since Dubais’s announcement. Nakheel’s Islamic bond maturing on Dec. 14 fell 3 points to 47 cents on the dollar on Wednesday, compared with 110 just before Dubai World’s announcement.

“This does not really enhance Nakheel’s ability to meet near-term obligations,” said Roy Cherry, vice president research, real estate and construction at Shuaa Capital.

Source: Daily Times

In America, the leading Dow Jones industrial index, fell 104.14 points to 10,285.97.

Earlier today, Abdulrahman al-Saleh, Dubai’s finance minister, admitted that six months may not be enough to restructure Dubai World, the state-owned conglomerate which owns Nakheel, the property developer.

It later emerged that Nakheel made first half losses of $3.65 billion, according to Bloomberg, after taking a huge writedown on the value of its land and developments. Two weeks ago, the Dubai Government asked creditors to grant Dubai World a six-month standstill on its repayments of nearly $60 billion of debt. Dubai World then announced plans to restructure $26 billion of its liabilities.
In London, the FTSE 100 index of blue chip companies tumbled 87.53 points to 5,223.13 with banks driven down by worries over their exposure to Dubai borrowers.

Royal Bank of Scotland, the state-owned bank and the biggest underwriter of loans to Dubai World, was the biggest faller, down 2.55p or 7.7 per cent at 30.69p.

The London Stock Exchange, which is 20.56 per cent owned by the Dubai state-controlled Borse Dubai, which lost 23.5p or 3.18 per cent to 716.5p.

Standard Chartered, also exposed to Dubai World debt, fell 55.5p to £14.37 and Barclays lost 9.5p to 287.5p.

London traders were also unnerved by new data on industrial production, revealing flat output in October, signalling that Britain, which is still in recession, has made a weak start to the fourth quarter. The CBI also published its industrial trends survey, which showed factories expect output to fall in the coming months.

The weak data was released ahead of the Pre-Budget Report tomorrow when the Chancellor is widely expected to reduce his forecast for Britain’s economic growth this year from a decline of 3.5 per cent to 4.75 per cent.

Meanwhile, European markets were unsettled by Fitch’s decision to cut Greece’s sovereign debt rating to BBB+ from A- with a negative outlook – the first time in 10 years a major ratings agency has put Greece, the eurozone’s weakest economy, below an A grade. Fitch cited fiscal deterioration as the reason.

Also weighing on European stock markets was worse-than-expected German industrial production data. German industrial output fell 1.8 per cent in October, largely as a result of weaker production of machinery and cars, against expectations of 1.1 per cent growth.

Source: Times

Abdul Rahman Al Saleh, Director-General of Dubai Finance Department, termed the Dubai World restructuring as a natural procedure that can happen in many countries and companies.

In an interview with the televsion channel Al Jazeera, Al Saleh said: “Articles of association of Dubai World stipulate that the emirate’s government shall not guarantee its debts,” he said, noting that a distinction should be made between the Government of Dubai and the group which is made up of several companies – including Nakheel and Limitless World – operating in various sectors.

“The media has blown the issue of restructuring part of the group’s debts including the delay of repaying Nakheel’s debts out of proportion,” he said, affirming that restructuring of companies is a frequent practice worldwide.

“The aim of restructuring is to allow the group to steam ahead with a new shape and keep abreast of changes.”

Asked about the possibility of putting off projects being undertaken by the group, Al Saleh said: “It is better and wise to delay projects that have not been executed yet.” He did not rule out selling of some assets in Dubai or abroad, saying: “Selling of some assets is a natural act in order to bolster the financial situation of the group in such circumstances.”

He added Dubai World is active in many sectors but it was only the real estate sector that was impacted by the international financial crisis.

According to agency reports, Dubai World was to meet its main creditors yesterday to discuss its request to delay repayment of $26 billion (Dh95bn) debt, bankers said.

The bankers, who declined to be identified as the talks are private, said the meeting would take place in the afternoon without being more specific. A Dubai World spokesman declined to comment

Source: Emirates Business

Four British-listed banks — HSBC, Royal Bank of Scotland, Lloyds Banking Group and Standard Chartered — and two local lenders — Emirates National Bank of Dubai and Abu Dhabi Commercial Bank — met NM Rothschild and Deloitte, Dubai World’s advisers, in the Group and SGulf State yesterday.

The banks tried to ascertain whether Dubai World would make interest payments due on the bonds of Nakheel, its property subsidiary, next Monday. Last night Dubai World’s intentions remained unclear.

The company said last week that it had asked creditors to restructure almost half its $59 billion (£36 billion) total liabilities, adding that it planned a six-month suspension of all debt repayments. The announcement sparked panic in stock markets around the world as nervous investors worried about a second wave of financial collapses.
The leading banks, which are forming a steering committee to represent all 90 of Dubai World’s bank lenders, also asked for detailed financial information to help them to revalue the company in the event of a default. A source close to the banks said that they will have created the steering committee and formally appointed KPMG as its adviser by Thursday. The accountancy firm has been advising the banks informally for several weeks.

The banks are expected to start formulating their negotiating stance this weekend, ahead of the formal meeting of all Dubai World’s creditors this month in the Gulf State.

Informed sources said that the banks were likely to be far less aggressive than a rival group of bondholders advised by Ashurst, the London-based law firm, because the bank lenders have significant operations in the Gulf and are reluctant to damage relations with Dubai or Abu Dhabi, its oil-rich backer.

The bondholder group advised by Ashurst, which is led by QVT, the American hedge fund, is less concerned about repeat business and has asked legal advisers to assess whether it has a potential claim over Dubai World’s trophy overseas assets, such as P&O, the ferry company. Ashurst declined to comment but it is understood that by yesterday the QVT-led group accounted for about 40 per cent of the holders of Nahkeel’s bonds by value.

Insiders close to the talks said that yesterday’s meeting had been exploratory but would establish the likely direction of future negotiations. The most immediate concern, however, is a $4 billion Islamic bond held by Nakheel, which is due for repayment on December 14. With the Nakheel bond only days away from default, further talks are scheduled this week between Dubai World and its banks and bondholders.

Earlier, a senior Dubai government finance official conceded that Dubai World was prepared to sell some of its key overseas assets as part of the restructuring. The holding company had previously sought to confine the restructuring to its real estate groups, Nakheel and Limitless World, but the comments by Abdulrahman al-Saleh, director-general of Dubai’s Department of Finance, has fuelled speculation that trophy assets such as the QE2 cruise liner and the group’s stake in Canada’s Cirque du Soleil could be sold in an effort to balance the books.

Mr al-Saleh emphasised that the Government itself would not sell any assets to bail out Dubai World.

Bargain-hunters look to cash in

Overseas property investors are “rubber-necking” in Dubai’s downtrodden housing market, trawling websites for evidence of the collapse hitting property prices and the chance to bag a bargain (Rebecca O’Connor writes).

Rightmove Overseas, the international division of the British property website, recorded a 176 per cent rise in the number of searches for bricks and mortar in the emirate in the seven days after Dubai World’s request for a standstill on debt repayments, compared with the previous week. The surge in interest took the monthly increase in searches in Dubai to 45 per cent between October and November, becoming the fourth-most popular country for people interested in property prices.

Housing prices have risen dramatically in Dubai in the past — doubling in the four years to the end of 2008. However, they sank by 47 per cent in the year to September, according to Knight Frank, the estate agency, and are forecast to fall by a further 30 per cent. There are hopes that they could bottom out next year.

Source: Times

Dnata, an airline handling operator owned by Investment Corp. of Dubai, the emirate’s main holding company, will buy cargo and ground handling operations at Heathrow and Manchester airports from Go-Ahead Group Plc for 15 million pounds ($25 million), according to a statement today. Go-Ahead’s aviation unit reported an operating loss of 4.5 million pounds in the fiscal year ended June 27.

Dubai shook global markets when it announced on Nov. 25 that it was seeking a “standstill” agreement on loans incurred by Dubai World, which has $59 billion in liabilities. Dubai World said Dec. 1 it began “constructive” talks with banks to restructure $26 billion of debt.

“I don’t believe what’s happening will have any impact on the businesses”, Dnata head Gary Chapman said in a telephone interview from Dubai. “We are a completely separate autonomous organization.”

The company has been “choosy” about acquisitions, Chapman said. “We hadn’t really seen too many opportunities.”

Dnata will provide airline handling to more than 20 airlines at Heathrow, including Emirates Airline and Etihad Airways.

Source: Bloomberg

In late morning European deals, London’s benchmark FTSE 100 index was up 0.53 percent at 5,355.36 points.

Frankfurt’s DAX 30 gained 0.85 percent to 5,831.23 points and in Paris the CAC 40 increased by 0.88 percent to 3,829.29 points nearing the half-way stage.

The DJ Euro Stoxx 50 index of top eurozone shares won 0.80 percent to 2,900.89 points.

“The FTSE 100 has benefited from renewed interest in the banking sector,” said IG Index chief market strategist David Jones.

In London, Barclays bank jumped 4.74 percent to 311.6 pence while Deutsche Bank rose 2.0 percent to 49.92 euros in Frankfurt.

The share price of French lender Societe Generale gained 2.60 percent to 48.93 euros in Paris trading.

Gulf stock markets closed slightly up on Thursday, with the initial shock waves from the Dubai debt crisis that caused heavy losses appearing to have subsided, traders said.

Qatar’s Doha Securities Market closed 1.21 percent higher to rise above the psychological 7,000-point barrier, spurred by the banking sector.

The DSM added 5.3 percent on Wednesday, a day after shedding 8.3 percent on fears local companies could be exposed to the Dubai debt crisis.

The two United Arab Emirates markets of Dubai and Abu Dhabi are closed for the second day on a national holiday, while the Saudi market, the largest Arab bourse, and Oman remain shut for the Muslim Eid al-Adha holidays.

Meanwhile market reaction to Dubai’s credit woes has been “overstated,” the head of an Abu Dhabi-controlled bank said Thursday, amid fears the Gulf city state may default on billions of dollars worth of debt.

“We are very confident and optimistic about (the regional economy),” Michael Tomalin, chief executive of National Bank of Abu Dhabi, said.

“I think the market reaction to Dubai has been very overstated.”

News that conglomerate Dubai World had asked for a moratorium on tens of billions of dollars in debt sent world markets into a tailspin last week, but analysts have said oil-rich Abu Dhabi would step in to help its neighbour.

In other stock market trading on Thursday, Tokyo’s benchmark Nikkei-225 index closed up 3.84 percent to 9,977.67 points, as a weaker yen sparked buying in exporter shares.

The auto sector meanwhile gained on news that Mitsubishi Motors was in talks with PSA Peugeot-Citroen about a tie-up. In European deals, the French carmaker PSA Peugeot-Citroen fell 0.59 percent to 24.45 euros.

Another loser on Thursday was Siemens — the German industrial giant shedding 2.15 percent to 66.14 euros after the group suffered a net loss of one billion euros (1.5 billion dollars) in its final quarter and said worse was to come.

The group is a good gauge for activity in the global manufacturing sector, with more than 400,000 workers in 190 countries making everything from light bulbs to medical equipment, power generators and high-speed trains.

Looking ahead, Siemens forecast a five percent drop in sales for the 2009/10 fiscal year, and an operating profit of between six and 6.5 billion euros, which could represent a drop of up to 20 percent.

Wall Street closed mixed on Wednesday as investors mulled a weaker-than-anticipated survey on job losses and a cautiously optimistic tone from the Federal Reserve.

The Dow Jones Industrial Average drifted down 0.18 percent to close at 10,452.68 points in a choppy session a day after the blue-chip index rallied to a 14-month closing high.

The Nasdaq composite gained 0.42 percent to 2,185.03 points and the Standard & Poor’s 500 index was virtually flat at 1,109.24

Source: AFP

On the first day of trading after the Dubai debt crisis, Qatari shares lost 595 points to close at 6,598.17. The news about Dubai debt crisis came out last week when the Qatar Exchange was closed.

All four sectors in the Qatari index, led by banks, dropped sharply with many listed firms falling close to the maximum allotted 10%. Market heavyweight Industries Qatar lost 9.31% to QR109.10, while QNB shed 9.1% to QR147.

At the opening, the benchmark index raced down sharply, shedding more than 650 points amid a panic sell-off, losing all its 2009 gains. The index, however, regained some lost ground and closed at 6,598.17 points, below the 7,000-point mark and under 2008 close of 6,886.12 points.

Qtel lost 9.41% to close at QR138.30. The closing price of some other stocks were: National Cement – QR77.90 (down 9.95%), Doha Bank – QR43.70 (down 9.39%), Commercialbank – QR60.60 (down 9.96%), Doha Insurance – QR21.40 (down 9.91%), Industrial Manufacturing – QR37.90 (down 9.33%) and Ezdan – QR59.90 (down 9.71%).

The strong reaction by Qatari stocks is obviously linked to the “believed exposure” of local companies to the UAE economy in general and that of Dubai in particular.

Financial analyst Abdullah al-Khater, however, downplayed the impact of the Dubai crisis on Qatar. “I believe the impact on Qatar is very minimal. Today’s drop is more related to the psychological impact,” he said.

The performance of Gulf stocks (other than in the UAE) remains to be seen in the next two remaining trading sessions this week given the closure of the emirates’ bourses in view of the UAE national day. Dubai Financial Market said it would remain closed today and tomorrow on account of the national day. Trading resumes on December 6.

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. That is likely to create many legal issues for investors in Dubai World, which sent jitters through global markets by seeking to delay payments on $59 billion in debt.

Abdulrahman al-Saleh, director general of Dubai’s finance department, said Monday that Dubai World was not guaranteed by the government, and the creditors would need to “bear some of the responsibility” for the company’s debt.

Problem of interest-free loans

Shariah-compliant investments prohibit lenders from earning interest, and effectively place lenders and borrowers into a form of partnership. Yet there are no consistent rules about who gets repaid first if a company defaults on such debt, said Zaher Barakat, a professor of Islamic finance at Cass Business School in London.

The first test of what that means for investors may happen around December 14, when payments on a $3.5 billion Shariah-compliant bond owed by Dubai World’s real estate subsidiary, Nakheel, come due. If Nakheel defaults on its payment, legal proceedings may be initiated.

It is unclear what may happen next. Nakheel bondholders have formed a creditors’ group representing more than 25 per cent of the outstanding debt, a legal adviser to the group said Monday.

Holders of these bonds “are going to argue that they are in the secured position on the underlying asset,” said one bank investor involved in the issuance of some of Dubai’s Shariah-compliant debt. That means that bondholders could insist on being repaid before banks, upending the traditional bankruptcy hierarchy. “No one has tested the legal system or the documentation,” a lawyer briefed on the situation said.

The 237-page prospectus for the Nakheel bond provides little clarity. In the case of a bankruptcy by Dubai World… or Nakheel, bondholders have no guarantee of “repayment of their claims in full or at all,” it said. Under Dubai law, it added, no debt owed by the ruler or government can be recovered by taking possession of the government’s assets.

A test case

A default would also pose a major new test for Dubai’s courts, which have never handled a major bankruptcy of one of the government’s own companies, lawyers and bankers said. Unlike its neighbours, Dubai has kept its judiciary system separate from the United Arab Emirates Federal Judiciary Authority. The decisions of the Dubai courts, which are controlled by the emirate’s ruling family, can be fickle, say lawyers in the region.

For example, in order to bring a court case against a government-owned or government-run entity, a corporation or individual needs to get permission – from the government. In the prospectus for Nakheel bonds, investors are warned that “judicial precedents in Dubai have no binding effect on subsequent decisions,” and that court decisions in Dubai are “generally not recorded.”

Global issuance of Shariah-compliant bonds and loans grew 40 per cent in the first 10 months of 2009 from a year ago, Moody’s Investors Services said in a November note to clients. The total amount of Shariah-compliant debt outstanding is estimated at about $1 trillion, up from $700 billion just two years ago. About 10 per cent of Dubai’s $80 billion debt load complies with Shariah, bankers and analysts estimate.

Gaining wider acceptance

Malaysia was traditionally the hub of Islamic finance, but much of this new activity has been centred around Dubai, and foreign and local law firms and banks there helped the emirate raise much of its debt. Dubai even has a school that turns students into “certified Islamic finance executives,” whose stamp of approval is required for an instrument to be deemed Shariah-compliant.

The surge in Islamic finance has led to hiring sprees at banks, and given rise to a series of new financial indicators like the Dow Jones Islamic Market index.

Hoping to appeal to the Middle East’s huge sovereign wealth funds, even non-Islamic institutions have started to raise money using Islamic finance.

In October, the British Treasury drew up rules that will soon allow Britain to issue Shariah-compliant government debt. The same month, the World Bank issued $100 million in Shariah-compliant bonds.

Source: 234Next.com

It gets worse, anyone with deposits paid on schemes from “Government owned” developers like Nakheel have already been badly treated when schemes are cancelled – they have either been ignored and deposits retained or at best offered six months to move to a new scheme, and not at bargain prices like the rest of the country. Effectively their deposits are lost.

It gets worse still, even where the scheme isn’t cancelled, the property may not be built for years, or ever. Finance won’t be available on the same terms as when people bought so it may make the property unaffordable from a deposit point of view and even worse the buyers are committed to prices that could now be 3 times the current “value” or worse.

It could get even worse than that – even foreign property owners who now own completed property should beware – the Sheikh has pulling the plug on supporting Dubai World may just be the beginning. Assetz has long distrusted the long time it took for the Sheikh to finally provide a form of freehold instead of leasehold and speculated it could have been because the Sheikh never really intended to offer freehold and really just wanted foreign capital to build the new Dubai and at some point foreign ownership could be revoked at the end of the leases and the value of the built real estate could be taken back.

That time may well be approaching decades sooner than we thought and foreign owned property could be taken back onto a leasehold basis (or worse) to prop up Dubai’s collapsing balance sheet….

The grand reversion to quality, the western world and well established legal regimes continues.

Source: Assetz News