Dubai slides into debt trap, rattles world

[GoFlyKiteNow]

Dubai slides into debt trap, rattles world
27 Nov 2009, 0039 hrs

Markets around the world found themselves lashed on Thursday by fears of fresh financial trouble, this time with its epicentre near home in Dubai, threatening to derail an incipient global recovery.

Dubai’s attempts to reschedule its debt has cast a shadow on a world only just emerging from the worst economic crisis since the 1930s, knocking markets from Sydney to Sao Paulo.

The only consolation for the region is that Abu Dhabi is booming.”

Most European indices were about 2% lower after Asia tumbled. The Shanghai Composite Index slumped 3.6%, its biggest drop since August, and Brazil’s Bovespa Index slipped 1.1%. U.S. markets were closed for the Thanksgiving holiday.

Credit-default swaps tied to debt sold by Dubai rose as much as 131 basis points to 571, Bloomberg News reported.

“Dubai isn’t doing risk appetite any favours at all and the markets remain in a vulnerable state of mind,” said Russell Jones, head of fixed-income and currency research in London at RBC Capital Markets. “We’re still in an environment where we’re vulnerable to financial shocks of any sort and this is one of those.”

 

[GoFlyKiteNow]

Europe shares suffer biggest 1-day drop in 7 mths
27 Nov 2009, 0022 hrs REUTERS

LONDON: European shares slipped 3.3 per cent on Thursday to record their biggest one-day per centage drop in seven months as concerns about debt problems in Dubai weighed on the market, with banks the major fallers.

The pan-European FTSEurofirst 300 index of top shares closed down 33.81 points at 988.14 – its lowest close in three weeks.

"The Dubai worries have played a major role in rattling market sentiment at a time when the US is closed and we are not getting anything from anywhere else," said Peter Dixon, economist at Commerzbank.

"It is a day in which market uncertainty has been provoked again. I do not think it really reflects the underlying fundamentals of the economy and the market, it is just a sentiment shock."

Dubai, whose extravagant building projects have been largely put on hold since the start of the global financial crisis, said on Wednesday it would ask creditors at its flagship firms Dubai World and property developer Nakheel to delay repayment on billions of dollars of debt.

Banks took the most points off the index on concerns about their potential exposure to debt problems in Dubai.

HSBC, Banco Santander, BNP Paribas, Barclays and Credit Suisse were down 3.3 to 8 per cent.

Other financials moved lower on Dubai exposure concerns. London Stock Exchange fell 7.4 per cent and Dutch insurer Aegon lost 7.7 per cent.

INFORMA, PORSCHE HIT BY DUBAI WORRIES

Shares in publishing and events group Informa, which has many Middle Eastern trade fairs, fell about 9.8 per cent.

Porsche lost 5.1 per cent as traders pointed to worries that Qatar Investment Authority may cut its 10 per cent stake in the carmaker to boost liquidity after the Dubai government asked for a debt standstill on two of its firms.

Oil stocks featured among the worst performers as oil fell 2.3 per cent. BG Group, BP, Royal Dutch Shell and Total were down 2.4 to 3.6 per cent.

 

[dysentry]

Probably should question what exposure SG banks have to Dubai debt, but can't trust local media to do the right thing...



From Goldman:

Backdrop

Many investors have asked about HSBC/STAN exposure to Dubai World (a leading government-linked property developer/holding company) and its affiliates, amidst Nov 26 press reports of Dubai World’s request for a creditor standstill agreement on its c.US$59bn debts (source: Bloomberg). Both HSBC and STAN have declined to comment on individual firm exposures. However, press reports (Bloomberg, FT), past descriptions by both banks of their UAE wholesale banking businesses, and HSBC’s/STAN’s status as the largest and second largest foreign banks in the UAE would all suggest some level of exposure to Dubai World and other similar entities.

Context on likely HSBC, STAN exposures

HSBC had US$15.9bn of loans/advances to the UAE as at end-June 2009. More specifically, HSBC had US$3.475bn of real estate and mortgage loan exposure to the UAE as of the same period, representing 25.9% and 2.7% of our 2010E net profit and shareholders’ equity projections for the group. STAN had US$12.3bn of cross-border loan exposure to the UAE as at end-June 2009 (and US$7.8bn of locally-booked loans to the UAE as at YE08). More specifically, STAN had US$1.674bn of real estate and mortgage loan exposure to the Middle East/South Asia region as of the same date. We estimate c.60% of this exposure, or US$1.0bn, was to the UAE, representing 22.4% and 3.4% of our 2010E NPAT and shareholders’ equity projections for STAN.

More clarity needed; first stab at worse-case loss estimates

Immediate questions include: how much actual exposure do HSBC, STAN have to Dubai World and other potentially similar situations, and what level of ultimate write-downs may need to be taken, what impact to EPS, BVPS? Key swing factors: level of continued support from other parts of the UAE, mode of loan restructuring undertaken by major creditors, degree of knock-on impacts to other UAE corporates, other emerging markets. Our first stab at potential worst-case loss estimates suggest a manageable impact: assuming a 50% NPL ratio/50% loss given default on commercial real estate loans, and a 20% NPL ratio/50% loss given default on mortgage loans, we estimate the potential credit losses to HSBC and STAN at US$611mn and US$177mn – or 4.6% and 3.9% of 2010E NPAT, 0.5% and 0.6% of 2010E equity.

 

[GoFlyKiteNow]

All these real estate and stock markets are interlinked
by mortage and reverse mortgage investor activities.

One meltdown in location is enough to trigger a domino effect
across the region.

 

[dysentry]

Contagion spreading?


Vietnam shares retreat in wake of rate hike, dong devaluation

Vietnam's main share index retreated more than 4% Thursday, as investors assessed the impact of the central bank's interest rate hike and currency devaluation.

Vietnam's central bank said Wednesday it would devalue the dong, the Vietnamese currency, by 5.4%, effective Thursday, and raise interest rates by one percentage point to 8%, effective Dec. 1.

The Vietnamese benchmark VN Index ended Thursday's session 4.1% lower, its fifth-straight day of declines.

Vietnam's currency has been under pressure in recent months because of the fiscal and current-account deficit, one of the few countries within the region faced with a twin deficit problem.

In a separate development, Vietnam's stock market regulator tightened regulations on share trading effective Dec. 1, ordering brokerages to stop lending shares to investors for the purpose of selling, according to Vietnam Stock Market News, which cited a statement by the regulator Wednesday. The practice was reportedly used to circumvent regulations preventing investors from selling shares within three days of their purchase.

The central bank's move Wednesday comes amid rising inflation brought on by aggressive stimulus spending and easy credit conditions. Vietnam's consumer price index climbed 4.4% in November, a six-month high.

 

[theblackhole]

another asian financial tsunami coming...this time damned jialat one!

better equip and protect yourselves.

 

[Debonerman]

one liner two liner does not matter............

 

[dysentry]

Nikkei just took another dive after lunch. S&P futures below 1080. Hang Seng down -760. Topsy turvy times are back.

 

[hellfire]

will that happen in sg one day?

 

[singveld]

The created the world. that was so stupid. who want to live in island?
they got too ambitious. and now their turn to die.
they are sending the ah neh back to their kampong, i think it is for the good of the world.

 

[dysentry]

a metropolis in the desert? they have to spend much money just to clear the sand from the roads. the maintenance costs and autocracy ought to have discouraged any investor. imagine being jailed for debt instead of bankruptcy.

 

[Areopagus]

I wonder which SWF is the largest investor in Standard Chartered Bank???

 

[halsey02]

I wonder which SWF is the largest investor in Standard Chartered Bank???

The late white knight of Standard Chartered Bank, must be laughing very loudly in his grave...now you know who...bought SCB..ha ha ha

Anyway, nothing ventured, nothing gain...commercial decision lah!...

 

[myfoot123]

I wonder how much money Ho Jinx invested in Dubai this time. She is a great fan of dubai. Don't forget.

 

[longbow]

Durai in Dubai?

Laidoff?

 

[longbow]

Furthermore banks will lump all 3rd world countries with high debt position into same basket. A credit squeeze for countries. They will need to pay more for the bonds they issue.

All these real estate and stock markets are interlinked
by mortage and reverse mortgage investor activities.

One meltdown in location is enough to trigger a domino effect
across the region.