DUBAI NEEDS FINANCIAL HELP
http://www.bloomberg.com/apps/news?pid=20601087&sid=av8CVL1H3T3U&refer=home
Dubai May Need Help From Abu Dhabi to Fund Borrowing (Update2)
By Matthew Brown
Oct. 13 (Bloomberg) -- Dubai may need help from Abu Dhabi and the United Arab Emirates government to finance a surge in borrowing that paid for the world's tallest tower, palm tree- shaped man-made islands and stakes in banks worldwide.
Dubai's ``potential reliance'' will be ``most significant'' in coming years, Moody's Investors Service said in a report today. Government-controlled companies owe at least $47 billion, more than Dubai's gross domestic product, and they will continue to accumulate debt at a faster pace than the economy grows, the New York-based rating firm said.
``These companies that are based in Dubai have become larger than Dubai itself,'' said Giyas Gokkent, chief economist at National Bank of Abu Dhabi, the U.A.E.'s second-largest commercial bank by assets. ``If anything were to go wrong with any of these companies, Dubai does not have the wherewithal to deal with it.''
State-owned Dubai World paid about $5.1 billion for almost 10 percent of Kirk Kerkorian's MGM Mirage last year; the price has tumbled since to $16.80 from $84. DP World, the government- run company that bought Peninsula and Oriental Steam Navigation Co. for $6.8 billion in 2006, has slumped 55 percent this year on the Dubai International Financial Exchange.
Ruler Sheikh Mohammed bin Rashid al-Maktoum has borrowed to replace Dubai's dwindling revenue from oil, investing to boost earnings from tourism and finance. State-owned carrier Emirates has increased its fleet to the largest in the Middle East, in a bid to double tourists per year to 15 million by 2015. Dubai Holding LLC, which groups assets belonging to Sheikh Mohammed, owns hotel chain Jumeirah Group.
Abu Dhabi Oil
Abu Dhabi, by contrast, owns more than 90 percent of the U.A.E.'s oil reserves, almost 8 percent of the world's total. The Abu Dhabi Investment Authority, its sovereign wealth fund, is the world's largest with assets of between $250 billion and $875 billion, according to the International Monetary Fund.
ADIA's Head of Media Relations Erik Portanger declined to comment on Moody's report.
Dubai's approach is backfiring as investors avoid the most indebted companies on concern the global credit crunch will increase defaults, while real-estate and company assets slump.
Deutsche Bank has fallen nearly 70 percent since Dubai government-owned DIFC Investments bought a 2.2 percent stake for about $1.8 billion in May 2007. Standard Chartered has declined 15 percent since state-owned Istithmar PJSC acquired a 2.7 percent stake for about $1 billion in October 2006.
The cost of insuring Dubai Holding's bonds has increased nearly four-fold since May, according to traders of credit default swaps. Credit-default swaps on Dubai Holding Commercial Operations traded at 679.3 basis points on Oct. 10, up from 172.99 at the beginning of May, CMA Datavision prices show.
The company's $500 million of 10-year notes due 2017 fell 2.2 percent today, raising the yield to a record 13.1 percent, Bloomberg data shows.
Dubai Model
While Dubai's economic model ``has proved successful to date, cumulative liabilities are currently rising faster than investments are able to generate returns,'' Moody's senior vice president in Dubai, Philipp Lotter, said in the report. This ``necessitates a clear understanding of wider implicit federal support when rating key government-backed corporation.''
Moody's expects a ``high level'' of support from Abu Dhabi for the ``most important'' publicly-owned companies in the U.A.E., Tristan Cooper, Moody's Middle East sovereign analyst, said in the report.
A spokesman for the Abu Dhabi government declined to comment on whether the emirate would assist its neighbor in meeting its debt obligations.
Abu Dhabi and Dubai are the two-largest emirates in the seven-member U.A.E. Dubai controls its economy through state- owned companies that dominate each major industry.
Mohammed Al Gergawi, chairman of Dubai Holding, and Sultan bin Sulayem, chairman of Dubai World, didn't answer their mobile phones when called for comment today.
`Unprecedented'
Abu Dhabi taking stakes in Dubai companies to help prop them up would be an ``unprecedented'' step ``that would have to be tested,'' Gokkent at the state-controlled National Bank of Abu Dhabi said in an interview. ``The Moody's debt numbers are conservative'' for Dubai, he said.
Dubai's benchmark stock index is down 44 percent as concerns over real-estate valuations and banks' access to capital weighed on investors.
``In most countries there are identifiable delineations between the public and private sectors,'' Cooper said in the report. ``In Dubai, however, the state corporatist model plus the fact that the ruler and his closest relatives form the core of the government make it difficult to draw such distinctions.''
To contact the reporter on this story: Matthew Brown in Dubai at mbrown42@bloomberg.net
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Gulf stocks dive at opening on global recession fears
Dubai Financial Market plunges 3.7 percent, Kuwait Stock Exchange loses 2.6 percent.
KUWAIT CITY - Stock markets in the oil-rich Gulf plummeted at the opening on Thursday as world bourses tumbled on fears of a global economic recession.
The Kuwait Stock Exchange, the second largest in the Arab world, shed 277 points or 2.6 percent, while the investment and banking sectors dropped 2.9 percent and 2.2 percent respectively.
The Dubai Financial Market plunged 3.7 percent as market leader, property giant Emaar, dived 5.4 percent.
The Abu Dhabi Securities Exchange also dropped 3.7 percent as the key real estate sector shed more than eight percent.
The small Muscat Securities Market was steady, down just 0.12 percent.
The Saudi market, the largest Arab bourse, was closed on Thursday for the weekend after ending the week down more than 10 percent.
Private Eye were saying Dubai was close to Iceland style economic meltdown.
People laughed at the suggestion, but it looks like Private Eye might have been right...
The quotes from Zabeel about concentrating on their domestic investments are very telling.
We may well have just had a lucky escape...
and the article was given a bit of stick ... no smoke without fire and all that
1. The aquisitor is switching targets.
2. Something bad has come up in DD.
I'd love to know what the truth is. Given the excuse that they've used would apply equally if they switched targets and damage credibility there, then I'd take evens on it being 2
I've said elsewhere that I believe that the Dubai royal family do want to invest in a current Prem club. They probably thought they could buy us through Zabeel and someone else through another investment vehicle. However, the FA rules on owning two clubs have probably turned out to be stricter than they imagined, so they have dropped us and will, I'm pretty certain, pop up under a different name and buy Everton or Fulham or someone. They are welcome to each other.