Islamic followers can be capitalists too. Although oil prices (currently around $77 per barrel) have fallen from the peak near $150 per barrel in 2008, oil rich nations have gotten creative in how they raise debt-like financing. Critical to fueling the speculative expansion in some oil rich areas has been the growth in sukuk bonds, which have been created as function of loophole exploitation in Islamic finance principles.

U.S. Does Not Have Monopoly on Debt Driven Greed

The pricked debt bubble that spanned the range of Icelandic banks to Donald Trump (read more)  has now spread to Dubai commercial real estate – evidenced by the plastering of recent global headlines. At the center of the storm is Dubai World, a quasi-government owned conglomerate of Dubai, which is in the process of negotiating a $26 billion debt restructuring with the government and sukuk bondholders. This overleveraged Dubai market ($80 billion in total debt) helped finance the tallest building in the world, largest man-made islands, and a ski-resort based in the desert, in the face of collapsing real estate prices. Critical to Dubai World’s debt restructuring is a $3.5 billion sukuk bond issued by its commercial real estate subsidiary Nakheel Development (“Nakheel”). So what exactly is a sukuk (plural of sakk)?

Investopedia lists the following definition for sukuk:

“An Islamic financial certificate, similar to a bond in Western finance, that complies with Sharia, Islamic religious law. Because the traditional Western interest paying bond structure is not permissible, the issuer of a sukuk sells an investor group the certificate, who then rents it back to the issuer for a predetermined rental fee. The issuer also makes a contractual promise to buy back the bonds at a future date at par value.”

Sukuk “No-No”s

The generation of money on top of money – interest payments or what’s called “Riba” – is strictly forbidden by Shari’ah law. As a result, issuers must issue and repurchase sukuk at par (original value), not at a discount or a premium. Shari’ah law encompasses more than Islamic law, it also covers the amorphous spiritual and moral obligations demanded from the religious practitioners. In order to ensure compliance with Islamic principles, many financial institutions and funds typically have a Shari’ah Board monitoring the details of the sukuk. Shari’ah law is very consistent with the teachings in the Quran (the Western version of the Bible). Mixing finance and religion may seem strange on the surface, but I guess if we use world history as a proxy, we shouldn’t be surprised that money and Muhammad somehow find a way to coexist.

Click Here to View CNBC Interview on Sukuk Bonds

Sukuk Structure  & Market

The core Islamic finance principles underpinning the sukuk market have been around for more than 1,500 years, but the actual sukuk market was actually introduced in Malaysia around 1990. Since then, the market has been on an uptrend. What makes this $1 trillion Islamic debt market (HSBC estimate) even fuzzier is the scores of sukuk structures (See Ijara Sukuk chart below – very similar to a sale-leaseback arrangement), and the diverse geographic issuer/investor base. For example, greater than 60% of Nakheel’s investors are based outside the Middle East (a large portion in Malaysia). Making matters as clear as mud, each geographic region and structure has its own interpretation of legal rights and Shari’ah law. Layer on issues such as derivatives, bankruptcy rights, and penalty fees and you end up with only more complexity. What’s more, many of these sukuk bonds involve Special Purpose Vehicles (SPVs) – made famous by the off-balance sheet variety used by Enron Corp. – in order to get around the Islamic issuance loopholes.

Source: Moody's Investor Service

Sukuk Liquidity

The illiquidity of sukuk market hasn’t made resolving the Dubai debt restructuring any easier. The sukuk market doesn’t come close to matching the liquidity of traditional corporate and sovereign debt markets. Little trading is done in secondary markets because most investors in sukuk bonds follow a buy and hold strategy. The lion’s share of trading in this immature market gets completed through inter-institution, over-the-counter transactions. A recent $500 million sukuk deal issued by General Electric (GE) last month has only raised awareness for the financing structure (pre-Nakheel restructuring).  As oil rich states strive to diversify their economic bases, I would expect more deals to get done, in spite of the recent Dubai mess. How severe the recent Dubai sukuk black eye will be depends on how Nakheel, the United Arab Emirates (UAE), Abu Dhabi, bondholders, and other constituents restructure the pending sukuk obligations by the December 14^th deadline.

 The recent debt restructuring talks in Dubai highlight the complexity of this relatively new Islamic financing structure. With very few sukuk bankruptcy cases in existence, the structures remain largely untested and uncertain. How the Dubai debt debacle ultimately gets resolved will have a significant impact on this nascent, but rapidly growing market. Until the sukuk restructuring is settled, Dubai may just need to put the construction of that next man-made island on hold.

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

DISCLOSURE: Information and data from Moody’s Investor Service (Shari’ah and Sukuk: A Moody’s Primer 5/31/2006), CNBC interview 12/2/09, Financial Times 12/1/09, and other articles. Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at time of publishing had no direct positions in GE. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

Postulation over Dubai’s debt dynamics has rattled markets, perhaps unnecessarily.

An investor’s biggest fear is always that something not previously considered is known to the competition and behind a major price move; As big waves of capital fled Dubai’s markets, the story of Dubai seeking a debt holiday sure felt like that. The announcement has certainly raised the Emirate’s profile in a new and distinctive way;  exposed with the alleged impecuniosity is the opaque nature of Dubai’s sovereign accounting. The policy of restricting the public’s access to information will now result in a higher cost of borrowing. This announcement plugged into the community’s base fears about the Emirate. The exaggerated reaction to the announcement tells us that the market didn’t really know what would happen next. That will have to change for Dubai to lower its cost of debt in future.

As an infrequent traveller to the region, who enjoys a base familiarity with the local culture, it seemed impossible that Dubai had overextended itself that fundamentally. Dubai had raised $5 billion shortly before asking for the holiday; even these guys couldn’t blow that in three weeks? Gaming swiftly took over: what was the consolidated short term off balance sheet debt level? Nobody knew for sure. What was the outstanding debt schedule? At the sovereign level, the best guess didn’t look unmanageable. What about the state’s varied holding vehicles? How screwed was Dubai World? Attention sharpened on Nakheel, the state owned (and ambitious) developer – the same developer that Abu Dhabi had unsuccessfully bid for in the not so distant past. Perhaps this whole thing was just a move to try to facilitate the transfer of a controlling stake in Nakheel for a discounted price? Theories proliferated faster than facts, assisted by speculative reports from investment banks, all trying to advise without the benefit of access to information. What was happening was postulation, not speculation; an activity closer to guessing than thinking. For investors, Postulation is a dangerous activities.

Harry couldn’t ask for better validation of this blog’s view of the Emirate. Harry believes that absolute rule hurts transparency, thereby increasing risk for investors, thus impacting stability and the ability of ordinary people to improve their lives. What matters currently in Dubai is not an empirical question of whether the Emirate is bust (Harry doubts that it is) or even impecunious; what actually matters is the impact on investor confidence. The Emirate’s decision to drop a bomb on the market’s thinking (and on Thanksgiving Day, no less) will likely worry investors for a long while. Academics can debate risk pricing and efficient frontiers all they like; for emerging markets investors, these things are formed by bitter experience. For any fund manager roused from stuporiic viewing of the now nearly ritual holiday slaughter of the Detroit Lions, Dubai’s misdemeanor must be worth 200 points on the country’s risk premium. And so it was that on Friday morning, the benchmark measure of risk – the country’s CDS spread – promptly blew out. Local equities followed when the exchange reopened.

The problem faced by most analysts – and for that matter, nearly everybody else in the Emirate – is that Dubai publishes precious little data about the state of the national accounts. It is difficult to speculate in an information shortage.  It’s unclear where the State begins and the ruling family ends, just as it is difficult to calculate the country’s precise debt load. To be clear, these figures are known – often precisely; they are just not known in detail to those who are outside of the ruler’s immediate circle, or to those who might provide capital to it. And why not? Dubai has no voters. But Dubai does have investors and creditors. If these people leave or become disillusioned, the ruler’s problems intensify. In bull markets, investors are happy to buy the ticket and take the ride. But the ride looks less appealing if the probability of explosion is above zero.

While American finance bloggers vociferously debate every kink and dent in the US curve, a small group of professionals in the region spend hours trying to piece together the Emirate’s numbers. This is because the region’s inefficiency (to use a technical term) results in attractive pricing for most financial products. The region has been a deep pool for bankers seeking to write loans and generate fees, just as it has been a rich vein for equity investors looking for undiscovered bargains. Whole swaths of the region’s markets are under researched, while companies themselves openly ignore analysts while seeking leverage to address expanding demand. The Emirate is, was, and will again be a global boomtown. It just might cost a bit more to finance, which means slower growth and less glitz going forward.

News of investor displeasure finally reached the top of the Palace pile on monday, leading the leadership to attempt stabilization as only they can. A press conference was duly organized, hosted by the primary personality himself. The FT could barely contain its glee as Al Maktoum delivered the smoke and mirrors. The Sheikh’s media strategy was clear: downplay the situation without revealing any useful detail. When asked about investors’ reaction to the Dubai World situation, Sheikh Mohammed shifted tack and went for brutal honesty: “They know nothing” he replied. Taken out of context, this is borderline funny; the statement’s accuracy is certainly not funny for investors trying to make decisions in a fog. The problem is that the ruler prefers it that way, which is why local media outlets are not allowed to criticize him, and by extrapolation, anything else.

Meanwhile, the mainstream (Western) press bravely defended free speech by transmitting idiocy. First, the local edition of the Sunday Times managed to get itself sin-binned after publishing a graphic showing the ruler drowning in a sea of debt – only it wasn’t the ruler; the ST actually published a picture of an entirely different individual. But that own goal is small beer compared  to the heroism of the blow dried personalities at Fox, who managed to screw up the difference between Apple, AMD, Dubai and Abu Dhabi in a breathless telecast on Friday morning. With reporting like this in the mainstream, it is no wonder people are confused.

Dubai can, and should, respond to this situation with improved disclosure and better investor communication. But it won’t, and as a result the next big quake from the Emirate might actually trigger some contagion. While some segments of the media were too quick to reach conclusions (and too loud in broadcasting them), at least one may have accidentally voiced an interesting conclusion: that the end game is a place called Abu Dubai. Harry doesn’t think this exists yet; but more exuberant spending could lead to Abu Dhabi taking over, in which case the newly branded Emirate would be called… Abu Dhabi.

]]> http://westcliffnews.wordpress.com/2009/12/01/dubai-will-be-ok-says-eddie/ Tue, 01 Dec 2009 19:05:31 +0000 Abbas Akbar http://westcliffnews.wordpress.com/2009/12/01/dubai-will-be-ok-says-eddie/

By: Abbas Akbar

A Dorset developer has faith that Dubai will survive the latest liquidity crisis.

Eddie Mitchell owner of Silver Arrow Dubai

Eddie Mitchell, a real estate broker who started up a company in Dubai in the last year, is adamant that Dubai will come out of this recession having learnt its lessons.

Markets across the Gulf slumped after Dubai’s largest developers Dubai World and Nakheel both announced to seek debt standstill. Royal Bank of Scotland was the biggest underwriter of loans to Dubai World, whilst specialists believe HSBC and Standard Chartered are highly exposed.

The projects in Dubai are funded by unwritten agreements from the government, and investors were assured that neighbouring Emirate Abu Dhabi would bail out Dubai.

Mr Mitchell owner of Silver Arrow Dubai, a profitable firm that has 2,000 properties in Dubai said, “If Dubai is in trouble Abu Dhabi will have to stand in to save them otherwise they could be in trouble too.” He added, “Demand hasn’t really diminished in Dubai, there are a lot of opportunities, to sell out there, and Dubai will learn its lessons from this recession and begin to grow in 18 months.”

“As the rest of the world will come out of recession businessmen will continue to head towards Dubai to invest.”

Silver Arrow Dubai is continuing to make profits in Dubai, selling and renting luxury homes and the market it caters for will not be struggling for equity to buy their homes.

There’s an interesting debate going on here about whether the Nakheel sukuk was truly sharia’a compliant.

Isabella Kaminska of the FT recalls the long-running debate that went on last year after certain disastrous remarks made by AAOIFI were attributed to a marked decline in sukuk issuance in 2008.

Kaminska questions whether any kind of principle protection can be valid when linked to the Islamic concept of “no risk, no reward”, whilst Blake Goud points out the fundamental differences between the ijara structure (the basis of the Nakheel sukuk) and the musharaka or mudarab contract. He concludes that:

“Nothing, Islamic finance included, can keep people from taking on debt to finance projects which do not succeed as planned.”

Incidentally, Blake’s blog on Islamic banking can be found here; it’s well worth a read.

First off hello, I’m back blogging after a hiatus on here, has been a very busy 6 weeks or so since my last post, as have been blasted by a few things, not least amongst them getting Emerging Voice into shape.

So, a quick look around the blogosphere today has shown that markets have attempted to throw off the Dubai Debacle, but it would seem that not everyone has got the message. Some of the best from the last few days include :

Junior Deputy Accountant (comes with language warning) where Adrienne shares her usual eclectic mix with us : It’s a miracle ! The Bailout Will Save us All

The lovely Lynn Berman over at MarketNut gives us a pull down from the main & not so mainstream sites : Dubai Update

The hive mind of Emerging Voice has a myriad of offerings : Contagion to Tower of Babylon

& Josh over at Reformed Broker brings his own brain to focus on the topic : Dubai World & Bear Stearns : Coal Mine Canaries?

there has been plenty of sniggering & much joking about exchanging an island for a goat, but we leave you with this sobering picture

MANUSIA YANG ANGKUH MELAWAN ALAM !

ISLAM KE TAK ISLAM, HUTANG TETAP HUTANG

Harga minyak jatuh dua dollar. FTSE – bursa saham di London jatuh 170 mata.

Di Peranchis dan German bursa saham jatuh sama.

Ini berlaku apabila Dubai meminta tangguh pembayaran hutang 35 bilion dolar yang seharusnya di bayar pada 30 November ini.

Di London – nilai saham hilang sebanyak 44 bilion pound.

Dubai World – taiko utama di Dubai – perlu membayar 3.5 bilion dolar Islamic Bond pada bulan Disember depan.

APA YANG SEDANG TERJADI DI DUBAI SEKARANG

Damac Properties di Dubai telah gagal membayar EPF dan tidak memberi apa-apa ganjaran kepada semua pekerja yang di buang.

- International Herald Tribune

Sekarang ini setiap hari 1500 permit kerja di batalkan.

- the Australian

Syarikat Pembinaa Nakheel telah membuang 500 pekerja, Damac membuang 200 pekerja dan Al-Shafar membuang 1000 pekerja.

- the Hurriyet

Lebih dari 80 buah kereta mahal mahal telah ditinggalkan di Dubai International Airport. Tuan empunya kereta lari mungkin kerana tidak sanggup membayar sewa beli rumah, pinjaman bank, telah dibuang kerja

- Khaleej Times

“The property bubble has burst.
Dubai’s “container economy” is in for a grind in 2010 and beyond. Owners of properties are uneasily aware that the crisis shaved off huge chunks from the value of those properties.

“Real estate companies have downsized; projects have been shelved, hundreds have lost jobs. The place is rife with rumours that Dubai is in colossal debt and is seeking an Abu Dhabi bailout,…”

- the Express Bulletin

“The financial crisis is forcing many parents who cannot afford increasingly high fees to pull their children out of schools and nurseries, teachers and parents say.”

http://www.the nation

(TT)

The financial world was rocked on Thursday as it began to emerge that Dubai was struggling to pay its debts. While the initial hype has died down with the news that Abu Dhabi is likely to step in, the whole affair will represent a huge test for the credibility of Islamic banking. Of Dubai’s $80m debt, ten percent is estimated to be made up of sharia-compliant loans and bonds.

Nakheel is due to pay its $3.5 billion sukuk on 14th December – the Islamic banking world will be watching closely.

More from the New York Times.

Pemulihan dari krisis finansial global yang disebabkan oleh surat utang di AS belum pulih benar. Namun, dunia kembali terguncang dengan pernyataan Dubai World, perusahaan investasi Dubai yang dipandang bonafide, karena meminta moratorium atas utang.

Perusahaan itu, Rabu (25/11), meminta kreditor internasional menghadapi pembayaran penundaan pembayaran cicilan utang sebesar 60 miliar dollar AS, setidaknya selama enam bulan ini. Perusahaan memiliki total utang sebesar 80 milliar dollar AS.

Ketika krisis finansial merebak tahun lalu, banyak pihak berpendapat kawasan Teluk dapat menjadi alternatif investasi yang cukup menguntungkan.

Saat Dubai World meminta penundaan kewajibannya (standstill), sejumlah pihak langsung bereaksi negatif. Pasar finansial di beberapa negara kembali bergetar. Pasar saham di Asia dan Eropa langsung anjlok.

Dubai World menghadapi anjloknya pemesanan atas sejumlah bangunan properti yang dibangun, seiring dengan anjloknya daya beli global. Pembeli properti Dubai World pada umumnya adalah warga kaya dunia, termasuk politisi Barat dan aktor serta aktris besar Hollywood.

Kawasan Arab menikmati rezeki berlimpah dari minyak yang membuat kawasan itu mengalami booming ekonomi. Pengembangan properti pun marak di kawasan itu. Harga properti meroket selama empat tahun terakhir karena gencarnya iming-iming keuntungan. Hal itu membuat pasar jadi jenuh.

Pada hari Kamis (26/11), pasar saham di Eropa jeblok dan membukukan rekor penurunan terbanyak sejak April 2009. Indeks Nikkei Jepang turun 3,2 persen, Kospi Korea turun 4,6 persen, dan indeks Hangseng Hongkong turun 4,3 persen.

Pasar AS tutup karena hari raya Thanksgiving, sedangkan pasar saham di kawasan Teluk juga libur sehubungan dengn Idul Adha. Namun, pada hari Rabu bursa di Dubai anjlok tajam dan perdagangan saham sempat dihentikan.

Bursa di London juga langsung anjlok pada hari Jumat dan dihentikan selama 3,5 jam dengan alasan teknis. Perbankan Inggris termasuk pemasok utama kredit ke Dubai World.

Saham perbankan anjlok

Saham-saham perbankan, Jumat, anjlok karena investor khawatir bank bersangkutan memiliki piutang terkait dengan Dubai World, temasuk obligasinya.

Pelaku di pasar valuta asing juga melihat akan ada gerakan pada mata uang karena investor akan lebih sensitif terhadap risiko. Para investor menubruk mata uang aman seperti yen yang naik hingga ke titik tertinggi dalam 14 tahun terhadap dollar AS. Ini mengancam saham perusahaan eksportir Jepang.

Di antara utang Dubai World yang mengalami penundaan pembayaran adalah obligasi syariah sebesar 3,52 miliar dollar AS. Obligasi itu diterbitkan anak perusahaan Dubai World, Nakheel yang merupakan pengembang proyek pemukiman prestisius bernama The Palm Islands.

Di kompleks yang dibangun di atas lahan reklamasi ini, David Beckham (pesepak bola Inggris) dan Brad Pitt (aktor AS) telah memesan rumah. Kompleks ini juga belum selesai dibangun dan diperkirakan akan gantung.

Utang lain yang juga diminta ditunda pembayarannya ialah obligasi syariah terbitan Limitless (juga afiliasi) sebesar 1,2 milliar dollar AS.

Berita soal Dubai World meningkatkan kekhawatiran mengnai keadaan utang di kawasan Teluk. Harga surat utang dari Abu Dhabi, Qatar, Arab saudi, dan Bahrain naik hingga menyentuh dua digit, tang artinya risiko dianggap meningkat.

Eurasia Goup, kelompok riset dari Washington, AS, menilai risiko makin meningkat bagi investor yang berinvestasi di Dubai. “Kepercayaan investor terganggu,” demikian Eurasia Goup.

Penguasa Uni Emirat Arab, Sheik Mohammed bin Rashid Al-Maktoum, menepis kekhawatiran orang. Dia mengatakan publik telah bereaksi berlebihan.

Ketika ditanya tentang utang Dubai World dalam pertemuan dua bulan lalu, dia dengan penuh keyakinan mengatakan bahwa “Kami baik-baik saja dan kami tidak khawatir.”  Terakhir, pada awal bulan ini dia mengatakan kepada para pengkritik Dubai untuk “tutup mulut”.

Sheik Ahmed bin Saeed Al-Maktoum, Ketua Komite Tertinggi Anggaran Dubai, juga menyatakan penundaan pembayaran utang itu sudah direncanakan secara matang.

Para analis juga yakin pemerintahan Uni Emirat Arab tidak akan tinggal diam dalam kasus krisis Dubai World.

Bank Sentral heboh

Namun, banyak pihak menilai kasus Dubai World merupakan fenomena gunung es dari bubble and burst sektor properti di kawasan, mengikuti kejadian di AS. Ini julukan bagi sektor properti yang booming pada tahun-tahun pertama, kemudian terjerembab beberapa tahun kemudian.

Pekan lalu, Direktur Pelaksana IMF Dominique Strauss-Kahn mengingatkan, perbankan global belum menuntaskan separuh dari total kredit ke sektor perumahan global.

Bank Sentral India, The Reserve Bank of India, akan meminta laporan dari perbankan di India mengenai kucuran kredit ke Dubai World, sebagaimana disampaikan Wakil Gubernur Bank If India Shymala Gopinath.

Bank Sentral China, Bank of China, menyatakan tidak menyalurkan kredit ke Dubai World. UniCredit Italia dan Taiwan buru-buru menyatakan tidak memiliki piutang ke Dubai World.

Perbankan di Arab, Inggris, dan Eropa kini resah dengan kasus Dubai World, yang dianggap sebagai Lehman Brothers, perusahaan bank investasi AS yang bangkrut karena tidak bisa menutupi kewajiban.

Belum diketahui bagaimana krisis ini akan ditangani. Namun, banyak pihak yang memperkirakan konstruksi bangunan milik Dubai World akan terkendala.

Sumber  :

Dubai World “Bangkrut”  | Kompas, 28.11.2009

Oh dear, oh dear.  For several years now, Dubai has been an unstoppable force of self-marketing – raising its brand awareness beyond that of cities thousands of years older.  But it’s often never been particularly clear what Dubai stands for – perhaps the difference between brand recognition and true reputation.  Well now Dubai has spent nearly 4 days in the international headlines all over the world.  And for all the wrong reasons.

I don’t profess to be an expert on financial PR and how and when markets should be alerted to bad news.  But it’s absolutely clear that despite the plethora of blue-chip banking and public relations advisers that Dubai has retained over the past 12 months of financial market turmoil, Dubai spectacularly misjudged its announcements about Dubai World’s restructuring and Nakheel’s debts last Wednesday (and Thursday, and Friday … as the clarifications continued to trickle out).

In reputation management terms, perhaps the greatest ‘learning’ (dreadful word) from the rollercoaster ride of external perceptions of Dubai over the past year, is that whatever you say must be supported by proof points.  Dubai’s rapid rise from unheard-of Arab trading port to international brand recognised by every London cabbie was based largely on the ‘proof points’ of its tourism offering – a 7 star hotel (whatever that really means), a fantastic airline, international sporting events, year-round sunshine etc.

But ever since the credit crunch started to impact Dubai last October, there has been a dangerous lack of proof points.  No amount of ‘positive messages’ was ever going to calm investors’ nerves when so few statistics were ever provided to back them up.  And why would anyone have wanted to put themselves forward as a senior official spokesperson for Dubai when even a rookie journalist would have torn holes in the positive assertions thanks to the lack of supporting evidence.  So the vacuum of official information has been filled with reams of speculation and rumour, such that when a few facts did start to emerge on Wednesday evening, analysts all over the world assumed the very worst.

Brand Dubai may have finally achieved what it wanted – global recognition.  But how sad that for want of transparency and honest proof points, that recognition will in many quarters be something along the lines of: “Oh yes, Dubai, I’ve heard of that place – it’s bust isn’t it?”.

ABU DHABI – ABU Dhabi, wealthy capital of the United Arab Emirates, will ‘pick and choose’ how to assist debt-laden neighbour Dubai, a senior official said on Saturday, after fears of a Dubai default sent global markets reeling.

‘We will look at Dubai’s commitments and approach them on a case-by-case basis. It does not mean that Abu Dhabi will underwrite all of their debts,’ the official in the government of the emirate of Abu Dhabi told Reuters by phone.

Dubai’s crisis exploded on Wednesday when the emirate, known for flashy lifestyles and the world’s tallest building, said it would delay payment on debt issued by one of its flagship firms, angering investors and sending global markets sharply lower.

Selective assistance for companies in ‘Dubai Inc’, a network of quasi-sovereign industries, instead of blanket assistance, would serve a rude awakening to investors who for years assumed that the conservative Abu Dhabi provided a safety net for its racier neighbour.

‘Some of Dubai’s entities are commercial, semi-government ones. Abu Dhabi will pick and choose when and where to assist,’ said the official, who declined to be identified because he is not authorised to speak to the media.

At stake is the US$59 billion (S$81.89 billion) in debt held by government controlled holding company Dubai World and its property arm Nakheel, builder of palm-shaped islands for wealthy celebrities. Dubai delayed payment on Nakheel debt by six months in a shock announcement, which came on the eve of a long holiday. — REUTERS

Source: Straits Times, 2009

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Le secteur financier du Golfe, déjà affecté par les défauts de paiement de deux groupes saoudiens et de firmes d’investissement du Koweït, s’oriente vers plus de difficultés avec la dette de Dubaï. Dubaï a surpris la planète entière  en sollicitant un moratoire de 6 mois sur la dette du fleuron de son économie, Dubai World. La dette du conglomérat est estimée à 60 milliards de dollars sur 80 milliards de dollars de dette publique de l’émirat.

Dubai-burj-al-arab

Nakheel, filiale immobilière de Dubai World, a une dette de 3,5 milliards de dollars qui arrive a échéance le 14 décembre 2009. Les banques de la région du  Golfe avaient été contraintes de se provisionner après les défauts de paiement de firmes d’investissement du Koweït, incapables de régler des montants de quelque 10 milliards de dollars. Elles étaient déjà exposées à des défauts de paiement de 22 milliards de dollars des groupes d’affaires saoudiens Saad et Al-Gossaibi. Suite à l’annonce effectuée par  Dubaï, le Gulf International Bank, dont le siège est  à Bahreïn, a décidé de reporter une émission d’obligations de 4 milliards de dollars. L’agence de notation Moody’s a déclaré qu’elle voulait revoir  la situation de 17 banques et 5 sociétés d’investissement des Emirats arabes unis. A suivre.

D’après l’agence Bloomberg, l’émirat de Dubaï pointe au 6e rang mondial des Etats les moins solvables de la planète : l’émirat a accumulé 80 milliards de dollars de dettes, soit 70 % de son PIB, dont environ 70 milliards dus par ses entreprises publiques. L’émirat, dépourvu de pétrole, souffre de ses investissements dans trois secteurs en crise : l’immobilier, la finance et le tourisme de luxe. Les prix de l’immobilier se sont effondrés de 47 % en un an. Le gouvernement de Dubaï a demandé à ses créanciers un moratoire de six mois sur ses remboursements. Il reste soutenu par Abu Dhabi, dont les banques viennent d’accorder des bons au Trésor à hauteur de 5 milliards de dollars (après un prêt de 10 milliards de dollars au printemps 2009). Les principales places boursières ont marqué une baisse d’environ 3 % à la suite de cette annonce.

L’une des plus importantes holding de l’émirat et sa filiale immobilière Nakheel, Dubaï World, propriétaire notamment de l’île artificielle en forme de palmier, a demandé à ses créanciers un sursis pour renégocier ses dettes : 59 milliards de dollars. Elle se déclare incapable d’effectuer ses remboursements d’ici le 30 mai.

Dubaï World est dirigée par le sultan Ahmed Ben Sulayem, un proche conseiller du du cheikh Mohammed Ben Rachid al-Maktoum. Après six ans de croissance rapide, l’économie de Dumbaï marque le pas depuis le second semestre 2008. Les banques européennes seraient liées à la dette de Dubaï à hauteur de 13 milliards de dollars.

Références
Dépêches
Reuters sur LesEchos.fr

Articles
Le Figaro : ” L’émirat de Dubaï au bord de la faillite “
NYTimes : ” Dubai Fund Asks for Stay on Debt Payments “
WSJ : ” Raining on Dubai’s Day at the Beach “
BBC : ” Dubai under scrutiny after debt payment delay “
Le Figaro : ” Les difficultés de Dubaï font plonger les marchés “
Le Monde : ” L’éclatement de la bulle contraint Dubaï à rééchelonner d’urgence sa dette “
Les Echos : ” L’émirat confronté à un risque de faillite “
Le Monde : ” La défaillance de Dubaï ravive la crise financière “

If recent history has taught us anything (Argentina, Brazil, Mexico, Thailand, Malaysia etc.), it is that events like the recent technical default of Dubai World (owned by Nakheel) are not things that go away quickly and without widespread pain. Aside from the high-level macroeconomic effects involving the foreign exchange markets and capital outflows, there is a huge technical implication here (not to mention the damage this could do to other middle eastern and emerging markets economies and the associated moral hazard implications).

An extremely disproportionate amount of the market is short the dollar and an event like this could be exactly the kind of thing that would break down the trade and have huge implications on the equity markets, especially in the US. The S&P 500 has been extremely correlated to the movement of the US Dollar of late and a rise in the Dollar would very likely cause a drop in the market. There is also a possibility that the increased strain on budgets in the United Arab Emirates could put pressure on the price of oil as they consider increasing output for additional revenue.

A very big thing to watch will be the market’s reaction and perception to this news over the next couple of weeks as volume comes back in following the Thanksgiving holiday. It will also be very interesting to see how money managers will be reallocating to reposition themselves for 2010. Will the chase for performance continue or turn into a race for the exits?

- Michael J. Burns

Disclosure: Long EEM, ILF, IVV, GXC, COP, CVX, several foreign stocks and foreign oriented mutual funds