World financial turmoil after Dubai defaults on debt repayments

[Libaax-Sankataabte]

A default by Dubai World would be the biggest by an agency of a national government since Argentina halted bond payments on $95 billion US in 2001. The financial crisis has hit the tiny emirate hard, with real estate prices dropping as much as 50 per cent in the past year. In London, British banks with the heaviest exposure to Dubai suffered some of the steepest losses, sending the Financial Times 100 down 3.2 per cent — its biggest plunge since March. Shares of Royal Bank of Scotland fell 7.8 per cent, while Barclay’s Bank ended down eight per cent, and Lloyd’s Bank dropped 5.8 per cent. HSBC, the biggest lender in the United Arab Emirates, fell 5.8 per cent. HSBC had $15.9 billion US in loans outstanding at the end of June. In Germany, shares of Deutsche Bank tumbled 6.8 per cent. The biggest bank in France, BNP Paribas, fell 5.1 per cent, while Societe Generale, the second-largest French lender, dropped 5.5 per cent. S&P/TSX financials fell 1.7 per cent, with Scotiabank slipping $1.15, or 2.3 per cent, to $47.91, TD Bank off $1.34, or two per cent, to $65.84, and the Royal Bank down $1.32, or 2.3 per cent, to $55.88.

 

http://www.vancouversun.com/business/Thursday+Trading+takes+sharp+drop+after+Dubai+postpones+debt+re payments/2273127/story.html

[General Duke]

Dubai is a fake city in the middle of desert..

[Che -Guevara]

The Sheikh has/had arrogant ambition that knows no limits and he paid no heed to any possible repucursions whether be environmental, economical, social or political-it looks like that arrogance and lack of foresight has come to haunt him.

 

 

*Wonders what peacenow would say about 10,000 prostitutes and sex trafficking not to mention the ill treatment of the poor South Asian economic migrants*

[N.O.R.F]

^A little unfair don't ya think? Considering the US finacial houses are responsible for this whole mess in the first place.

 

We knew for a while now that this would happend to DW and Nakheel in particular. There two parts to Dubai Inc. Dubai World and Dubai Holding. The latter is slowly coming out of this mess. The former, which includes Istithmar World, who purchased Daallo last year, still haven't paid them hence Daallo cancelling the London to Djibouti route! Dubai Ports World is exempt from the restructuring.

[Dhagax-Tuur]

Good riddance, fools, I say. Calling yourself a muslim, running a muslim emirate and going to Casinos (MGM) for money.

 

Hope they wise up and make their economies knowledge and native driven.

 

Now that they've about 10yrs left of the oil, they'll have to introduce income tax and think hard. Honeymoon/petrodollar is over!

[Baluug]

I thought UAE didn't have oil in the first place...

[General Duke]

^^^ all it has is Oil, Abu Dhabi is the power and Dubai's is running out. They spent to much on glitz and glamour in times of down turn those things don't matter.

[Abu-Salman]

This is a salutary lesson for all, as the main culprits are Nakheel and the property boom (though the Financial crisis started in the West).

 

However, the real jewels in Dubai, like the now ring-fenced Dubai Ports or Emirates airlines, are quite healthy and litterally still taking over the world (almost exclusively Gulf-owned airlines are prospering nowadays).

 

Whether or nor the default on payment is a pressure on Abu Dhabi to bail out (albeit with major restructurations), the debts are, at any rate, still negligible in the overall national picture of the Emirati Federation...

[Libaax-Sankataabte]

Kian Abouhossein of J.P. Morgan tells folks "don't panic". UAE as a whole is wealthy.

 

 

The view from our MENA team is that this event reflects cash flow challenges rather than refinancing ability. They believe that obligations on Dubai World and its property unit Nakheel PJSC are likely to be fulfilled at the new May 2010 earliest repayment date, and that Dubai should be eventually be able to fulfill its debt obligations maturing in the short-term ($4bn in Dec-09, relating to Dubai World, and $9 to $10 in 2010) with continued Abu Dhabi support. Abu Dhabi is strong financially with fiscal and current account surpluses, ~$150bn in FX reserves and a ~$300bn sovereign wealth fund. However it seems that Abu Dhabi will no longer be happy to underwrite all debt, and rather will differentiate more strongly between supporting Dubai's strategically important assets (such as DEWA, and Dubai Ports), and the non strategic assets – hence the concurrent timing of the Dubai World debt restructure and the Abu Dhabi underwritten government of Dubai debt raising

[Abu-Salman]

Sovereign Wealth in Abu Dhabi

Author: Rawi Abdelal a

Affiliation: a Harvard Business School, Boston, MA, USA

 

 

Abstract

By the turn of the century, oil had already made the tiny emirate of Abu Dhabi rich beyond anyone's wildest dreams. A sovereign wealth fund, the Abu Dhabi Investment Authority (ADIA), has invested extra oil revenues abroad for more than thirty years and amassed a still-growing portfolio worth approximately $750-900 billion. ADIA is widely believed to be the world's largest sovereign wealth fund - indeed the world's largest institutional investor. But Abu Dhabi is not yet a “developed” economy. So, in 2002, the Mubadala Development Company was established as a government-owned investment vehicle. Unlike ADIA's mandate to build and manage a financial portfolio, Mubadala's charge was to develop Abu Dhabi. According to some observers, ADIA was a “sovereign savings fund,” while Mubadala was a government-owned investment firm. Mubadala is supposed to invest the wealth of the emirate in activities that would diversify the economy away from energy and into industry and services. Although each Mubadala investment is supposed to earn large returns, the strategy balances financial against “strategic” returns. ADIA and Mubadala are the institutional architecture to manage the wealth of the Abu Dhabi sovereign.

 

Actually, all these losses do confirm that the shift from Western financial markets to tangible investments in more accessible emerging countries's infrastructure and agriculture is the way forward for Arab capital surplus; a welcome development for high-growth economies like Sudan, Egypt, Algeria all the way to Mauritania and Senegal (even Djibouti now experiences 6/7% growth largely thanks to these flows)...