Wednesday, November 25, 2009
"Dubai Inc.—that collection of state agencies and state-backed companies that has powered the city forward—now faces a debt crisis as scary as anything that threatened the banks of the U.S. and Europe. It has to pay back or refinance almost $50 billion in four short years.
The key cluster of Dubai companies owes as much as $90 billion, or 126% of gross domestic product, much of it in short-term bonds and loans from the world's top banks."
BANZAI7 NEWS--Dubai World, with $59 billion of liabilities, is seeking to delay debt payments, sending contracts to protect the emirate against default surging by the most since they began trading in January.
The state-controlled company will ask creditors for a “standstill” agreement as it negotiates to extend maturities, including $3.52 billion of Islamic bonds due Dec. 14 from its property unit Nakheel PJSC, Dubai’s Department of Finance said in an e-mailed statement. Moody’s Investors Service and Standard & Poor’s cut the ratings on several state companies, saying they may consider the plan a default.
NYT--For the banks that financed the debt-fueled ascent of Dubai — analysts’ estimates put its total debt at about $80 billion — the move by Dubai to obtain a standstill highlights a truth that many in the region had been trying to make clear to bankers. It is that Abu Dhabi, the oil-rich governing emirate of the United Arab Emirates, will not unconditionally bail out its more profligate neighbor. Instead, a genuine restructuring of Dubai’s debt, with pain being shared equally between Dubai and its bankers, needs to take place.
WB7: Better keep an eye on this one. Who are Dubai's lenders and who is on the paying side of those Dubai CDSs? Remember the Asian Financial Crisis and the Ruble Crisis? Someone somewhere is not having a very Happy Thanksgiving because this turkey is over cooked.
Then again, I could be wrong. This could just be a welcome holiday diversion for bankers already worrying about their deteriorating commercial real estate exposure.
CAMEL CONTAGION UPDATE:
FT--Bond markets reacted with alarm to the news yesterday that Nakheel, the property arm of Dubai World, was restructuring a bond it was due to redeem next month.
Dubai World is owned by the government, leading investors to worry about the wider implications should the Nakheel announcement be considered a technical default.
"The severity of the reaction shows that investors view this as shockingly bad news," said Rob Whichello, head of BNP Paribas's bond syndicate desk for central and eastern Europe and the Middle East. "They've been surprised by the announcement and clearly expected that something would have been worked out."
The developments came at a particularly sensitive time for other government bond investors, who have already been unsettled this week by a sharp rise in the cost of protecting against default by Greece, a eurozone member.
"The concern for the market as a whole is not so much a lack of confidence in an individual sovereign, more about the cumulative impact of a series of problems," said Gary Jenkins at Evolution Securities.
"Quantitative easing and a structural move towards government debt has helped funding thus far, [but] the risk remains that if a growing number of governments start to lose the confidence of the market that pressure will be put on yields generally."
PREVIEW OF DEBT RESTRUCTURING MEETING: