Dubai stops paying its debts- Markets down

MrMatisse

It seems dubai has decided to default on its debts ($59bn) and its trying to re negotiate the terms. Markets are falling and the LSE had to close its computer systems as they experienced a 'technical fault' as people tried to sell closing the market for three hours. Markets fell again after they reopened

http://news.bbc.co.uk/2/hi/business/8380105.stm

http://news.bbc.co.uk/2/hi/business/8380607.stm

Anyone any thoughts on the potential impact of this?

Idu

They've asked for a delay, not the same as defaulting. Market sentiment now is whats leading the move down not actual news.

And it says nothing in that article about the volume of trading being at fault for the glitch. It's not that busy.

I would be more careful with your posts to be honest

Comordha

I agree, when dicussing debt, 'Default' is like using the 'Nationalisation' word in equity terms.

Lexus1976

Really-Stressed wrote: »

It seems dubai has decided to default on its debts ($59bn) and its trying to re negotiate the terms. Markets are falling and trading volumes had caused the LSE to close as its computer systems could not cope with the inital volumes of selling.

http://news.bbc.co.uk/2/hi/business/8380105.stm

http://news.bbc.co.uk/2/hi/business/8380607.stm

Anyone any thoughts on the potential impact of this? Are we heading into another bear market as fear reappears?

Every second week you post something like this :rolleyes: why?


http://www.boards.ie/vbulletin/showthread.php?t=2055686781

http://www.boards.ie/vbulletin/showthread.php?t=2055686790

MrMatisse

Lexus1976 wrote: »

Every second week you post something like this :rolleyes: why?


http://www.boards.ie/vbulletin/showthread.php?t=2055686781

http://www.boards.ie/vbulletin/showthread.php?t=2055686790

Im wary of the current market and think its being driven by a massive liquidity push and nothing else. Thus I post this view when I post. ( hardly every second week those threads are from two months ago and were quoting that bastion of hysteria the financial times)

An optimist like yourself also posts hot penny stock tip type posts and you as are just entitled to do this as me.

In response to an earler post as to whether this is a default

Global credit rating agency Standard & Poor's, which rules on a company's or government's ability to repay its debts, said the announcement "may be considered a [debt] default".

Generally, when someone asks you for money, and you dont have it. Thats called a default.

MrMatisse

More info here, very interesting article.

http://business.timesonline.co.uk/tol/business/markets/article6933664.ece

Interesting Quote:

One London trader said: "Dubai is weighing heavily on the market, it has its fingers in so many pies that it could have a contagion effect and there are concerns another country could have problems on the back of this."

meditraitor

less than €50bn, not exactly a catastrophy........... The ability of Dubai to repay this is not in doubt. Its only the terms they want changed.

Not really good news but it really isnt that important in the scheme of things

MrMatisse

meditraitor wrote: »

less than €50bn, not exactly a catastrophy........... The ability of Dubai to repay this is not in doubt. Its only the terms they want changed.

Not really good news but it really isnt that important in the scheme of things

Clearly the markets think it is.

Bullish

I agree with IDU 100% it is sentiment that is driving it down, all that is needed is a trigger.

The difference between an optimist and a pesimist is the pesimist is never dissapointed

DJDC

Not really good news but it really isnt that important in the scheme of things

FTSE -3%. Billions lost. Look at the top fallers, most are banks that lent billions to Dubai. In short, your analysis is hilariously wrong.

pocketdooz

HSBC BANK MIDDLE EAST LIMITED 17.0
STANDARD CHARTERED BANK 7.8
BARCLAYS BANK PLC 3.6
ABN-AMRO BANK N.V 2.2
ARAB BANK PLC 2.1
CITIBANK N.A 1.9
BANK OF BARODA 1.8
BANK SADERAT IRAN 1.7
BNP PARIBAS 1.7
LLOYDS TSB BANK PLC 1.6
HABIB BANK AG ZURICH 1.4
UNITED BANK LIMITED 0.8
ARAB AFRICAN INTERNATIONAL BANK 0.7
AL AHLI BANK OF KUWAIT K.S.C 0.6
BANK MELLI IRAN 0.6
NATIONAL BANK OF BAHRAIN 0.3
BANQUE MISR 0.3
CALYON 0.2
HABIB BANK LIMITED 0.2
BLOM BANK FRANCE S.A 0.2

MrMatisse

There is also all the european construction companies/suppliers that will not get paid. It all adds to an increase in unease and a tightening of credit markets. I see the irish bonds spread over the bund is up again.

Also there seems to be uncertainty over the size of the debts given the murky structure.

The official figure for Dubai's debt is $80bn, but talk to anyone here and the feeling is the figure is much higher. Unpaid bills, abandoned cars and empty buildings are all too obvious. Some analysts put the real figure at close to $160bn. ( From the times article above)

All in all its a very unhelpful development and hopefully we dont see any contagion over the next few days.

MrMatisse

pocketdooz wrote: »

HSBC BANK MIDDLE EAST LIMITED 17.0
STANDARD CHARTERED BANK 7.8
BARCLAYS BANK PLC 3.6
ABN-AMRO BANK N.V 2.2
ARAB BANK PLC 2.1
CITIBANK N.A 1.9
BANK OF BARODA 1.8
BANK SADERAT IRAN 1.7
BNP PARIBAS 1.7
LLOYDS TSB BANK PLC 1.6
HABIB BANK AG ZURICH 1.4
UNITED BANK LIMITED 0.8
ARAB AFRICAN INTERNATIONAL BANK 0.7
AL AHLI BANK OF KUWAIT K.S.C 0.6
BANK MELLI IRAN 0.6
NATIONAL BANK OF BAHRAIN 0.3
BANQUE MISR 0.3
CALYON 0.2
HABIB BANK LIMITED 0.2
BLOM BANK FRANCE S.A 0.2

Hi , Where did you source this? Interesting list. Also doesnt add up to anywhere near $60bn, wonder whos holding the exposure. ING is missing from the list and they are owed millions for example.

Since the debt is Sukuk ist hard to know where the risk is.

Also do they not have a leveraged sovereign wealth fund also? Wonder has that been taken into account

pocketdooz

Really-Stressed wrote: »

Hi , Where did you source this? Interesting list. Also doesnt add up to anywhere near $60bn, wonder whos holding the exposure. ING is missing from the list and they are owed millions for example.

Since the debt is Sukuk ist hard to know where the risk is.

Also do they not have a leveraged sovereign wealth fund also? Wonder has that been taken into account

I got it from a friend who works in sovereign debt at ABN (now RBS).

Figures are in £ billion so you need to translate that to USD.

I agree its opaque but gives an idea of who is owed the money. However you would have to imagine those banks have repackaged and sold the risk on to somebody else.

Sounds familiar, right?

.

MrMatisse

pocketdooz wrote: »

I got it from a friend who works in sovereign debt at ABN (now RBS).

Figures are in £ billion so you need to translate that to USD.

I agree its opaque but gives an idea of who is owed the money. However you would have to imagine those banks have repackaged and sold the risk on to somebody else.

Sounds familiar, right?

.

NOT AGAIN!!! No one can know who is really holding this shi8ty debt so.

Bullish

So Woo Hoo buy FAZ ;-)

for a day trade

pocketdooz

Dubai Default Worries Infect Markets
On November 25, 2009, on the eve of the Eid holiday, Dubai World, the state-owned holding company asked creditors for a'standstill' or payment delay on outstanding debt until May 2010 for debt of Nakheel, the property developer subsidiary and Dubai world itself. The move, coming, just ahead of the December 14 maturity date could if implemented be viewed as a technical default by many investors. As a whole, state-owned Dubai World, has US$59 billion in liabilities, a significant amount of the total estimated US$80-100 billion in Dubai liabilities.
So far in 2009, all the maturing government-linked debt of Dubai has been paid off in full, with government funds making up any shortfall in private funds. Yet, given the vulnerabilities of the property sector and challenges of the economic model, Nakheel could be a different story given the government's desire to support only viable companies. Yet, the costs in raising future funds may thus be even more costly. The lack of transparency about corporate and national finances and which debt might be honored, is adding to uncertainty and credit risk.
Effects of the Standstill in Dubai and Beyond

[*]Despite investor concerns, sales of domestic assets will be impossible until November 30 due to the Eid holiday. In addition to sending Dubai CDS spreads up 200 basis points, to levels higher than those of Iceland, the uncertainty has infected the CDS spreads of Abu Dhabi and other GCC countries (to a much lesser extent) and has been cited as an explanation in the 2%+ corrections in European asset markets, some of which were already worried about European debt defaults. Dubai-exposed banks were most affected as were EMEA FX assets.
[*]Lars Christensen of Danske: "The contagion spreading from Dubai to the CEE, Turkey and South Africa is more natural than one might think. The worries concerning Dubai focus on potential banking losses and given the fact that the banks with the largest exposure to Dubai are also big players in, for example, South Africa, it is only natural that the rand has come under pressure." (11/26/09)
[*]FT's Lex: "The consequences of the standstill, and possible eventual default, are far-ranging. The repayment of Dubai World's US$4 billion Nakheel bond was seen as a litmus test for the emirate's ability to deal with the US$80 billion owed by the sovereign and its state-controlled companies. The emirate's willingness to do this is now in doubt, especially as only an hour earlier it raised $5bn from two state-controlled banks in Abu Dhabi. This was only half what had been expected, but followed $10bn of earlier support from the kingdom's richer neighbor. Foreign creditors are muttering darkly about taking legal action." (11/25/09)
[*]RGE's Rachel Ziemba argues that "Extending the maturity of Nakheel debt is feeding the market’s uncertainty on which debt Dubai will honor in full.” (via Bloomberg, 11/25/09)
[*]Dubai's total external debt, held mostly by government-linked corporations, is estimated at US$80-100 billion or 148-200% of 2007 GDP. Despite new capital, the vulnerabilities of Dubai World, the state holdings company, have reemerged in November 2009, with the company announcing a corporate restructuring and request by Nakheel, a property developer to delay payment on its debt.
[*]So far in 2009, all the maturing debt associated with Dubai-linked companies has been paid off in full, with government funds offsetting any shortfall in private funds, however, given the vulnerabilities of the property sector and challenges of its economic model, Nakheel could be a different story. The government suggested in the fall that it might ration scarce resources to companies that have viable business models, which might seem to exclude Nakheel. The ratings agencies which previously worried that the State-linked company debt might not be paid in full, responded to the debt standstill request by sharply downgrading many state-linked companies to junk status.
[*]Although the US$3.5 billion Nakheel sukuk is backed by collateral, the value of the underlying assets has been eroded. Moreover, the bankruptcy and default regulations are still relatively untested meaning that the leverage of creditors making this in many ways a test case.
[*]New York Times: "To some extent, the announcement of the standstill request was mitigated by earlier news on Wednesday that Dubai had raised $5 billion from Abu Dhabi banks. Still, that figure was considerably less than the [fund] Dubai had been hoping to attract from investors in the region as well as abroad." Chris Davidson of Durham University points out that the timing of the announcement of the standstill is "interesting" as it "indicates that the money from Abu Dhabi is not to be spent on Nakheel and Dubai World.” (11/26/2009)
[*]Rating agencies have been sharply downgrading Dubai government-owned corporations in the last year as the degree of government support has become less than clear. On November 2009, Moody’s cut the ratings on Dubai Ports World, Dubai Electricity and Water to Baa2 (junk status) from A3 and downgraded 4 other government linked companies as it reduced the assumption of government support to these companies, bringing ratings closer to the ratings indicated by the fundamental credit position of the companies rather than an expectation of government support. The agency noted that the debt restructuring plan "highlights the government's intention to strictly adhere to its stated policy of supporting only those companies with viable long-term business prospects, which implies that support for distressed or weaker companies may be less forthcoming...confirmation of such policy could result in further reductions in support assumptions that would align ratings entirely with the companies' fundamental credit profile." Uncertain Government Support
[*]When Dubai floated a (sub)sovereign Sukuk in October 2009, the prospectus argued that the emirate had no legal obligation to settle state company debt, adding to creditor concern that there would be different classes of Dubai government-linked debt.
[*]The quest for the standstill agreement comes just a week after the leaders of Dubai World and several other state holding companies were replaced. There continues to be uncertainty about the way in which the restructuring might take place and if the standstill will be granted voluntarily or forced. Despite recent capital raising, Dubai has as much as US$9 billion in payments due by March 2010 and an estimated US$50 billion in the next three years.
[*] Una Galani of Breaking Views argues that Dubai "is biting the bullet... finally realising that it can't pay off all its debts without a serious financial restructuring." Although Creditors will resent making concessions, its necessary for the long-term. (11/25/09) Dubai World Restructuring?
[*]The property companies have been the most vulnerable and while others benefitted from the bounce-back in tourism as well as global inventory restocking. the free zones, and Dubai Ports World have engaged in some significant cost-cutting also which has helped stem losses. However, the property development model has been challenged as prices have suffered sharp 40% declines in price before stabilizing at low levels in mid 2009.
[*]In late November 2009, Sheikh Mohammad replaced some of the head managers of Dubai World and Dubai Holding, the most credit-constrained parts of the Dubai Inc.
[*] On October 15, Dubai World, the government-owned corporation which has been seeking to restructure its debt, announced a significant restructuring including job cuts of as much as 12,000 workers. It has consolidated several of its operations especially its overleveraged property vehicles. It has tried to avoid distressed sales of its assets to raise capital but may offer equity in several Dubai World subsidiaries to some of its creditors.
[*]This corporate restructuring could allow it to focus on core assets and consolidate some of the most vulnerable sections of the company. Moreover, making the cuts may be a precondition from creditors, both private and public. Reports suggested that Istithmar, one of dubai's sovereign funds might be liquidated or at least investments stopped. On Sep 17, Dubai World transfered some staff and property to Istithmar World from property developer Nakheel.
[*]RGE's Rachel Ziemba: Istithmar, the leveraged alternative investment arm of Dubai World has been under pressure for some time. Rather than a liquidation, what might transpire might be a reorganization within the holding company. (09/14/09)
[*]
The 2009 Debt Renewals
[*]RGE's Rachel Ziemba notes that the Nakheel debt expiry this fall will be a significant test case as it’s the largest debt coming due until next year (via Bloomberg 10/14/09).
[*]The Dubai government has been raising funds to provide financing for state-linked companies who might not be able to raise capital themselves. Already several large refinancings have taken place (Borse Dubai, DEWA and Dubai Civil Aviation) with the government providing some funds to each. However, if the government may be rationing its capital despite a possible default.
[*]In September, Caroline Grady of Deutsche Bank suggested that Dubai needs the other US$10 billion bond issuance to help repay the debts coming due by the end of 2009 including US$3.52 billion sukuk (Islamic bond) of Nakheel and the US$1 billion global sukuk. Most of the debt holders are local which could increase their likelihood of rolling over the debt.
[*]Rating agencies have been worried that Nakheel's debt would be restructured since at least April.
[*]US$14 billion in interest and principal payments came or comes due in 2009 (most has already been restructured). Dubai is slated to run a fiscal deficit in 2009 as revenues decline. The US$10 billion in instruments bought by the central bank of the UAE are five-year bonds that carry an annual interest rate of 4%, below the rate of Abu Dhabi government and government-linked corporations bonds issued in 2009. (EFG-Hermes)
[*]To ease its cash flow, Nakheel arranged to pay half the interest on the debt, 3.1725% , during the life of the bond and the rest at maturity. It backed up the sukuk with significant collateral: land and other assets worth more than twice the value of the sukuk (though the value has subsequently slumped but it now faces worse cash flow issues (National)
[*]The government insists that it has adequate funds to pay off any debts belonging to Dubai's quasi-sovereign companies (“Dubai Inc”) and its banks, especially as it will issue the next US$10 billion in bonds later this year.
[*]April: DEWA, the Dubai utility which is a majority stakeholder in TAQA, and Dubai Civil Aviation both raised funds to refinance debt. DCA's loan includes a 1.7 billion UAE dirham tranche, US$100 million and 52 million euros. The facility will pay a profit rate of 300 basis points above benchmark interest rates. Dubai government will contribute US$365 million to bridge the shortfall. Dewa got US$2.2 billion loan at an interest rate of 300bps above the interbank offered rates and may also scale back capex plans
[*]February: US $1.2 billion of the US$2.5 billion loan for Borse Dubai was raised from international banks with another US$1.3 billion from state-owned Dubai banks after ICD, a state-owned investor deposited cash with them. Borse Dubai also received a US$1 billion equity injection from shareholders including the government.
[*]Central bank of the UAE had $25 billion in fx reserves in June (most recent data) including include some of the Dubai currency bonds. Abu Dhabi has the ability to channel funds to federal government institutions but it might be only willing to grant funds to viable operations.
[*]UAE's total external borrowing remains much lower than Abu Dhabi governments assets but even the assets of Abu Dhabi's sovereign funds may be smaller and less liquid than some public reports suggest.