Who is carrying the risk - Dubai’s unfinished construction projects is in the hundreds of billions of dollars

extract of original TheDailyMarverick

Some say the sum for Dubai’s unfinished construction projects is 400 billions of dollars , so who is carrying the risk?

Multiple reports state that Abu Dhabi will "pick and choose" how to assist Dubai.

As capital of the United Arab Emirates and home to the central bank that feeds the cluster of seven emirates, everybody is exposed to everyone else. Abu Dhabi pumps 90% of UAE oil, so that’s a big hedge. But just as Dubai World has subsidiary upon subsidiary, and extends its tentacles into state enterprises, parastatals, and listed firms, it’s hard to track where the fault lines lie in the patchwork that is UAE finances, and beyond into the markets of the Middle East proper.

Abu Dhabi’s own cost of insuring its debt against default has soared, from just less than $100,000 per $10 million, to more than $177,000. And while this number fluctuates with the desert winds, there’s no guarantee that Abu Dhabi will keep forking out money to save its emirate cousin. For now, though, the prospect of rising costs on its own borrowings appears to have galvanised Abu Dhabi into providing more cash to Dubai. Stock markets swelled after Abu Dhabi’s payment of $10 billion to its neighbour, with Abu Dhabi's stock market clambering 7.9%, while Dubai’s benchmark index rallied 10%, the biggest single-day gain in more than a year. But this remains far below its level before Dubai World announced it wanted a hold on debt.

Reuters quotes Abu Dhabi people who say most of the über-emirate’s credit flow was too big, government-backed entities in Dubai, which helped collateralise Abu Dhabi's own late entry into the wedding-cake architectural stakes.

"During those years, the property market was still in its infancy in Abu Dhabi, so like other banks here, we, too, diverted our credit to Dubai," one Abu Dhabi bank executive said. "We have to face the stress that will be caused to our balance sheet and profit and loss account due to this exposure to Dubai World and associated companies because it is a default. Yes, we will have to take more provisions."

No one yet knows where the debt really resides.

Western banks appear to have some $12 billion of exposure to Dubai’s unfinished building frenzy.

There’s a sprinkling of Islamic sukuk bonds, such as the one that funded Nakheel’s $4.1 billion of due debt.

But the market wants to know if Abu Dhabi’s latest $10 billion was a gift, or a loan, or came from the proceeds of a veiled asset sale.

Abu Dhabi recently launched a push to improve transparency and raise money overseas, to help fund its own 20-year development programme. And so far, the emirate has raised about $8 billion this year on international credit markets.

But last week, ratings agency Moody's placed the credit ratings of several big Abu Dhabi companies on review for a possible downgrade, citing uncertainty over government support. And in the meantime, rival agency Fitch downgraded Dubai Bank, and also Tamweel – the largest provider of UAE real estate financing. It also downgraded Bahrain's TAIB Bank.

Another motivation for Abu Dhabi helping out Dubai World is the company's Dubai port operations, which it needs to market as a dependable global transport hub.

Dubai has got off lightly to date. But if the property market doesn’t return soon, hundreds of billions of dollars worth of skyscrapers and palm-shaped islands will remain unfinished hulks amid the dunes and warm waters off Dubai’s coastline.

more.

Read more: Barrons, Reuters, Guardian, The Wall Street Journal

Sheikh Mohammed al-Maktoum : "They do not understand anything."

original source The Independent

Headline: Sheikh attacks investors for global fallout of Dubai debt

The ruler of Dubai hit out at international investors yesterday as his government's impecunious investment vehicle revealed plans to restructure $26bn of its debts.

Sheikh Mohammed al-Maktoum said: "They do not understand anything."

After days of uncertainty that sent shudders throughout the world's stock markets, Dubai World finally unveiled plans to address the liabilities of its two property ventures – Nakheel and Limitless – after midnight on Monday night.

The timing of Dubai's request for a debt standstill, on the eve of the four-day Eid holiday, drew criticism from financial communities across the globe.

But in his first public comments since the crisis broke, Sheikh Mohammed had harsh words for investors and remained bullish about Dubai's economy. "We are strong and persistent," he said. "It is the fruit-bearing tree that becomes the target of [stone] throwers."

more... The Independet

Nakheel and its parent will be a test case for Dubai

original source Business Standard

Dubai World’s guarantee to bondholders could prove worthless. The emirate’s holding company, which is seeking a six-month standstill from creditors, pledged to repay a $3.5 billion Islamic bond issued by its now troubled property subsidiary Nakheel. Yet with local creditors effectively calling the shots, foreign lenders might find enforcing that guarantee impossible.

Nakheel has asked for trading in all three of its listed Islamic bonds to be suspended. Only the first, which was issued in 2006 and is due to mature December 14, was guaranteed by parent Dubai World. The liability on the subsequent two bonds, which have a total face value of $1.7 billion and mature in 2010 and 2011, appears to be limited to Nakheel itself.

The Dubai property developer’s 2008 accounts show $41.5 billion of assets and $17.5 billion of liabilities — a net asset value of $24 billion. But real estate prices in the emirate have fallen around 50 per cent in 2009.

That means Nakheel, which funded some of the emirate’s most outlandish projects, could easily now have a negative equity value of $5.5 billion.

The equity value at parent Dubai World, which had liabilities of $59 billion at the end of 2008, is also likely to be negative. Its portfolio of 10 companies looks mostly troubled. However, Dubai World does hold 77 per cent of publicly-listed ports operator DP World. That was worth $5.1 billion on November 25, just before Dubai World announced its intention to restructure.

Nakheel’s foreign creditors shouldn’t get excited about their recovery prospects.

To get a lawsuit against Dubai World off the ground, 75 per cent of Nakheel’s bondholders have to agree. But the majority of creditors are local banks, which are likely to accede to any request to roll over Nakheel’s debt — even if the capital structure remains unsustainable, according to one ratings analyst. And even if local lenders joined in, Dubai’s law might not support a claim that forced the sale of the assets of government-related entities.

Lawyers agree the restructuring of Nakheel and its parent will be a test case. That makes Dubai World’s guarantee look less than solid.

Secenario - Why Dubai`s Debt Matters

original source Forbes from Oxford Analytica

If Abu Dhabi doesn't mount a serious rescue operation, creditors are likely to seek legal redress against the defaulting Dubai government.

Dubai's heavily foreign investment-dependent economy began to unravel in September 2008 following the global credit crunch. Property prices fell steeply, share prices in publicly listed companies collapsed and confidence was badly shaken in the emirate's ability to survive the crunch. By the close of 2008, government-backed companies responsible for Dubai's development had accrued debts of more than 80 billion dollars.

Abu Dhabi bailout.
In February this year, following Dubai's difficulty in refinancing a $3.8 billion loan, the United Arab Emirates (UAE) Central Bank, backed by Abu Dhabi, subscribed to a $10 billion bond, with interest rates set at 4%. However, earlier this month, it became apparent that Dubai would need a much bigger capital injection, especially given that its largest property developer--Nakheel, a subsidiary of Dubai World--was due to refinance a $3.5 billion Islamic sukuk bond on December 14.

Article Controls
On November 24, it was announced that Abu Dhabi had provided an additional $5 billion loan:

--Significantly, insiders indicated that this loan came with strings attached, and that it was to be used to pay disgruntled foreign contractors rather than to re-finance the Nakheel debt.

--While little is known about Abu Dhabi's reasons for these limits on its assistance, it may have been reluctant to be associated with Nakheel, a company with problems considered to be too big to solve through loans.

Sovereign default ?

Although not technically an example of a sovereign default, the request has been viewed as such. The agencies have thus downgraded most government-backed Dubai companies and entities either to below investment grade or to junk status.

The credit default swap rate on Dubai debts rose by more than 100 basis points, taking it to 434 points.
As a result, the emirate's ability to seek additional credit on international markets has been sharply curtailed.

Political collapse ?

If Abu Dhabi does not mount a serious rescue operation, creditors are likely to seek legal redress against the defaulting Dubai government:

--In this scenario, 'Dubai Inc.' will be widely regarded as bankrupt and the ruling Al-Maktoum family held responsible, due to the 'blurred lines' between the government and the wealth of the ruling family.

--There would also be political ramifications. It would be unfeasible for Sheikh Mohammed or Sheikh Hamdan to remain in power following such a massive loss of prestige.

If, on the other hand, Abu Dhabi does agree to provide more credit, there will also be significant implications:

--It will do so only under very strict conditions, since it will be reluctant to pour money into rescuing failed projects.
--It will thus begin to dictate terms to Dubai, and almost certainly seek to centralize power in the UAE federation and rein in Dubai's autonomy.
--However, given the political culture of the Gulf states, such moves are likely to be made discretely, in order to allow the Dubai ruling family to save some face.

Outlook.
Dubai World's decision to delay paying its creditors is a serious miscalculation, since, by trying to restructure some of its largest debts, it has placed itself under close international scrutiny. This will make it extremely difficult for the company to acquire fresh credit, and increase the risks of further defaults. Only oil-rich Abu Dhabi is in a position to stage a financial rescue, but even if it does, Dubai is likely to emerge chastened, and to adopt a different approach towards economic development.

To read an extended version of this article, log on to Oxford Analytica's Web site.
Oxford Analytica is an independent strategic-consulting firm drawing on a network of more than 1,000 scholar experts at Oxford and other leading universities and research institutions around the world.
For more information, please visit Oxford Analytica here

Shocking - Dubai`s main investment fund seeks debt payment delay

original source BBC

The government-owned investment company behind Dubai's rapid development drive has asked its creditors for a six-month delay on repaying its debts.

Dubai World, which has total debts of $59bn (£35bn), is asking creditors if it can postpone its forthcoming payments until May next year.

Dubai World has also appointed global accountancy group Deloitte to help with its financial restructuring.

The company has been hit hard by the global credit crunch and recession.

'Shocking'

The Dubai government said in a statement that the request to delay debt repayments also applied to property developer Nakheel, a Dubai World subsidiary.

"It's shocking because for the past few months the news coming out has given investors comfort that Dubai would most probably be able to meet its debt obligations," said analyst Shakeel Sarwar, of SICO Investment Bank.

Dubai is one of the seven self-governing emirates or states that make up the United Arab Emirates.

Analysts say the Dubai government has paid the price for a flamboyant economic model centred on foreign capital and giant construction projects.

Some have speculated it is likely to turn to the more economically conservative Abu Dhabi emirate to bail it out.

The Dubai World announcement was made on the eve of the Eid al-Adha Muslim festival, which will see many government agencies and companies close in Dubai until 6 December.

see also: Bloomberg Reuters WallStreetJournal

Dubai Nakheel Palm Jebel Ali Home Buyers stay united

People who bought waterfront villas on Palm Jebel Ali, where prices have tumbled by about 45 per cent from their peak in the third quarter of last year, are now being asked to transfer their investments to projects that include Al Furjan and Jumeirah Heights, which are both under construction.

But the move has been criticised by investors, who expected to move into their new homes last year.

“Nakheel has called investors and given them this option,” said Saqib Iqbal, who bought a villa in the development in 2006.

“But most investors would like them to complete Palm Jebel Ali. People have paid premiums on top of what they paid originally, it’s a disaster to be asked to move somewhere else.”

Palm Jebel Ali was the second artificial island project to be launched by Nakheel and was designed to accommodate up to 250,000 people and add 70km of beachfront to the emirate.
“Further work on Palm Jebel Ali has been delayed until market conditions allow recommencement of these phases of the development, and customers are being given a range of options within the wider Nakheel portfolio to transfer their investment,” said Nakheel.

In an letter sent to Marwan bin Ghalita, the chief executive of the Dubai Real Estate Regulatory Authority (RERA), investors said: “This is not what was sold to us. The apartments being offered are much smaller, with no beachfront or private pool, and are at a much higher price.”

The investors, most of whom have paid 30 per cent towards their purchase, have called on Nakheel to instead resume construction of Palm Jebel Ali, register their plots with the Dubai Land Department and officially agree to link further payments with construction milestones.

original source The National read the full article.......