Abu Dhabi stock market suffers worst losses in history

[General Duke]

We won't cover Dubai World's debts, says country's government• Top finance official warns of 'short-term' pain for investors

 

• Securities Exchange falls 8.31% while Dubai World loses 15%

• Moody's warns contagion from the debt crisis is 'unavoidable'

Comments (29)

 

 

Investors across the UAE took their first opportunity to respond to Dubai's woes. Photograph: Kamran Jebreili/AP

 

The Dubai government said today that it will not guarantee the debts of the stricken conglomerate Dubai World as the city state's debt crisis continues to haunt the world's financial markets.

 

After the Abu Dhabi stock market suffered its biggest ever one-day fall today as investors returned after the Eid holiday, Dubai's top finance official appeared on Dubai TV to insist there was "no need to worry".

 

But Abdulrahman al-Saleh, director general of Dubai's department of finance, caused a surprise by saying that the emirate's government will not guarantee Dubai World's $59bn (£36bn) debts. He warned that creditors will suffer "short-term" pain.

 

"Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct," he said.

 

"Dubai World was established as an independent company, it is true that the government is the owner, but given that the company has various activities and is exposed to various types of risks, the decision, since its establishment, has been that the company is not guaranteed by the [Dubai] government." .

 

Last night, the UAE central bank announced it would honour the debts of Dubai's banks, in an attempt to calm the panic. However, this guarantee did not extend to Dubai World's debts, which led some analysts to speculate that its lenders could suffer heavy losses.

 

Investors across the United Arab Emirates rushed to sell shares as soon as trading began this morning, taking their first opportunity to respond to Dubai's woes. After a four-hour trading session, the Abu Dhabi Securities Exchange closed 8.31% lower – the worst decline in its history. The National Bank of Abu Dhabi tumbled by 9.7%, amid fears that the region's banking sector will suffer major damage.

 

Stock markets across the UAE have been closed since Wednesday to mark the Muslim Eid al-Adha festival. That was the day when the state-owned conglomerate Dubai World shocked the markets by asking for a six-month delay in repaying some of its debt.

 

In Dubai today, shares fell by the most since October 2008, when the banking crisis was raging. The main Dubai index fell by 7.3%, with Dubai World losing nearly 15%. This came after Nakheel, Dubai World's real-estate arm, asked for trading in three of its bonds to be suspended.

 

Rating agency Moody's also warned today that the crisis could have major implications for the UAE. "The contagion effect for Abu Dhabi will be unavoidable, as doubts will be raised as to how Dubai is going to finance its growth," said its analysts in a research note.

 

Moody's added that a restructuring of Dubai World's debts could lead it to cut its rating on banks across the UAE.

 

Dubai World's request to defer repaying its debt has already sparked fears of a wider collapse, with shares falling sharply on Wall Street last Friday, and in London the day before. However, there is anger within the country that the crisis has been overhyped. Sales of the Sunday Times were reportedly blocked across the UAE, and local media have run articles defending Dubai's leaders. One newspaper ran the headline "Global outcry over Dubai World restructuring is exaggerated". After the region's stock markets closed today, Gulfnews.com reported simply that "UAE markets end lower on sentiment".

 

In London, the FTSE 100 was down by 21 points at 14.45 at 5224. Banks were among the biggest fallers, including Royal Bank of Scotland which is thought to have arranged more Dubai debt than any other bank in the past two years.

 

The Dow Jones industrial average was down slightly 6 points in early trading on Wall Street where investors were encouraged by retail sales over the Thanksgiving holiday weekend.

[Che -Guevara]

Are there any regulations in place to avoid this sort of financial calamity? Is there even internal control system to ensure the company's viability and solvency?

 

This is what happens institution ran like family practice with no deference to the shareholders.

[General Duke]

^^^Dubai was built on quicksand and now even the more conservative and oil rich Abu Dhabi is suffering.

 

It seems like this is the beggining of the long decline of the UAE..

[Cawaale]

Dubai is facing international crisis & its own challenges as other states in the world. but ts more or less consumer-State regardless of consideration economy terminologies. imagine a small park in Dubai costs the state thousands of dollars a year (soil imported, flowers imported, water desalination technique (imported), workers Imported and sometimes the supervisor management of the park is imported too.)

I am sure Dubai will move beyond the crisis but what is the cost?

[Libaax-Sankataabte]

Abu Dhabi has the largest SW fund in the world. No country/city has saved more wealth than Abu Dhabi in the last 30 years. This tiny emirate is loaded with cash and other goodies. In that sense, the country of UAE is not going to fall apart because of one company (Dubai World) loosing 60 billion dollars.

 

But I do understand reputation and confidence are not that easy to maintain under these circumstances. Dubai lost prestige.

 

Here is the world ranking of Sovereign Wealth Funds by the SWF Institue.

 

http://www.swfinstitute.org/funds.php

[NGONGE]

^^

Don't forget petrol prices at $75 per barrel.

 

This is bad but not as bad as what happened to the rest of the world in 2008.

[N.O.R.F]

A storm in a 'shah nac nac'.

 

AD will bail DXB out if need be. Don't read too much into the statements.

[Che -Guevara]

^I think the point here what could they learn from this experience to make this doesn't happen again.AD could bail the compay is beside the point.

[N.O.R.F]

^Read the first line on the first post.

 

What could they (and the whole world) learn? Don't borrow too much.

[General Duke]

There is a political dimension to this the Maktoums will no longer be as independent as they have been, and Dubai will come under the control of AD from now on.

 

Dont build castles in the sky is more apt for this situation, all those silly building projects were a waste of time.

[ElPunto]

^Exactly. AD is putting on a power play. They want choice assets for bailing out Dubai like a stake in Emirates airlines and other profitable enterprises. No more freebies.

[N.O.R.F]

All back at work today and we're all surprised at the hoohaa this has created. Headline news on all major networks. Everyone asking if things are OK whenever I spoke to them on the phone over Eid.

 

Exploding Dubai's debt myths

Wayne Arnold

 

Last Updated: November 30. 2009 10:05PM UAE / November 30. 2009 6:05PM GMT It has become commonplace to refer to the fallout from last week’s decision by Dubai to ask Dubai World’s creditors for a six-month delay in payments as a “debt crisis”. It is not.

 

What Dubai and the UAE now face would be more accurately described as a crisis of transparency and information. For it is the uncertainty over why Dubai made its decision and what it plans to do next that has generated the anxiety now gripping financial markets.

 

The situation at Dubai World does not appear to pose the kind of systemic risk that created past crises, either the one that erupted after the bankruptcy of Lehman Brothers last year or previous debt crises in Asia or Latin America.

That does not mean that last week’s events cannot trigger a broader crisis of confidence in emerging markets inflated by cheap dollars.

 

Economists have been warning that a wave of government stimulus has created an unsustainable bubble in developing economies not unlike the one that burst in September last year. But Dubai World’s current predicament is part of the clean-up of the debris of that earlier bubble.

 

Feeding the confusion are a number of misconceptions about what is going on at Dubai World and what risk it poses to the financial system here in the UAE and abroad. One of the most commonly repeated is that Dubai World has US$59 billion (Dh216.7bn) in debt.

 

Dubai World and the companies it controls have between them $59bn in liabilities. But that number includes a lot of obligations that are not conventional debts, analysts say.

Excluding these, Dubai has a much more manageable $23.8bn in debts, according to Deutsche Bank’s estimates. Of that, only about $5bn is owed directly by Dubai World.

And not all of the remaining $18.8bn is affected by last week’s decision: Dubai has already said that ports operator DP World and the Jebel Ali Free Zone Authority (JAFZA) will not be included in the debt restructuring.

 

The Nakheel sukuk is due on December 14, but it now appears that Dubai will ask that holders of the bond agree to delayed payment. Clearly, this is not what markets expected. Judging from the price of Nakheel’s sukuk the day of the announcement, its repayment was considered a virtual certainty.

 

If Nakheel does not pay on December 14, with or without the agreement of its creditors, the non-payment will not represent a sovereign event. Nakheel’s sukuk was never a government debt, never enjoyed the explicit backing of the Government of Dubai and never had a credit rating.

 

Dubai’s Government underlined this distinction in its bond prospectus in October, which analysts at Moody’s Investors Service determined was a signal to lower their rating on several Dubai issuers — they could no longer be sure the Government would bail them out.

 

While this means lower credit ratings and higher borrowing costs, it does not mean that Dubai World will or will not repay other debts or that other Dubai borrowers will ask for delays on their debts.

 

One source of uncertainty stems from the fact that the Dubai Financial Support Fund has divulged no details on its criteria for providing emergency funding or to whom it has provided that funding. Greater transparency on this score would undoubtedly have helped to avert the current confusion and avoid even more going forward.

 

Another more dangerous misconception is that if Dubai World misses the December 14 Nakheel payment, banks to which it owes money will suffer a debilitating blow.

Most of the banks that lent Dubai World money most likely started provisioning against it at the height of the crisis earlier this year. The same goes for owners of Nakheel’s bonds. Many of them undoubtedly bought those bonds when they were selling at steep discounts and are even now sitting on profits.

 

Another puzzler is the worry that Dubai’s move stands to trigger a crisis among other sovereign borrowers in emerging markets.

 

But Dubai does not pose a sovereign risk the way Latvia poses a sovereign risk. Dubai is more like California: if and when it runs out of money, it cannot print more. That means there is less risk that if Dubai could not afford to pay its debts, it would undermine the value of the dirham and spark a sudden outflow of capital.

 

Much of the panic in global markets over Dubai seems to stem more from the timing of the announcement, which came during a long holiday weekend in the US.

And with the year-end holidays approaching, analysts say investors were looking for a signal to take some of their money off the table. Dubai unwittingly gave them that excuse.

 

Source

[Som@li]

Have you seen this ,Sunday Times was recalled from Dubai Shelves cuz of this article.

[N.O.R.F]

^I doubt it was recalled from shelves. Where did you hear that?

 

The article basically re-hashes what everyone here already knows. There is a scramble by all media to write something about Dubai's debt and exaggerate things whilst people here are living their normal lives i.e. no big deal and DXB will get through this.

[NGONGE]

Originally posted by General Duke:

There is a political dimension to this the Maktoums will no longer be as independent as they have been, and Dubai will come under the control of AD from now on.

 

Dont build castles in the sky is more apt for this situation, all those silly building projects were a waste of time.

Abu Dhabi was ALWAYS in control anyway. This changes nothing in the relationship, saaxib. After all, Sheikh Mo is the prime minster of the UAE (and not just the ruler of Dubai). You truly need to understand the intricate relationship between Abu Dhabi and Dubai, saaxib.