Investor Shock Dubai Calls For Debt Standstill/Could Default

[Sanket]

Investor Shock Dubai Calls For Debt Standstill/Could Defaul (http://news.bbc.co.uk/2/hi/business/8380105.stm)


Dubai's financial health has come under scrutiny after a major, government-owned investment company asked 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.



Our correspondent said: "Standard & Poor's and Moodys immediately downgraded all six state-backed corporations in Dubai, downgrading some to junk status."


Acted Too Late!

Time for More Popcorn...:D

[Sanket]

Is this bye-bye Dubai? (http://www.telegraph.co.uk/news/worldnews/middleeast/dubai/6667851/Is-this-bye-bye-Dubai.html)

Dubai dazzled the world with its extravagance and excess. Now it wants to defer its debts. What went wrong, asks Richard Spencer.

By Richard Spencer
Published: 27 Nov 2009

No expense spared: The Atlantis Hotel, Dubai
Early one morning at the end of last month, a throaty roar rippled over the sands of the Arabian desert. As it grew in pitch in the warm dawn air, it also became fainter, reverberating through the vacant car parks and abandoned building sites of the city towards the calm waters and newly built islands of the Persian Gulf.

As the caravan disappeared over the western horizon, it lumbered rather more than you might expect from one made up of luxury sports cars: but then, there were 82 of them. The Ferrari Owners' Club was on its way.


Dubai debt worries grip financial markets It could only be Dubai. The emirate – the very term has oriental echoes of excess – does nothing by halves, and though analysts said the financial crisis would induce a sober new realism, we in Dubai didn't listen.

When we go to watch Formula 1 in Abu Dhabi – the case that Saturday morning – we go by police-escorted Ferrari convoy. When we build new buildings, we build them higher than any that have gone before. Then we build more of them. When we build sandcastles in the shape of palm trees, full of splashy houses with swimming pools and private beaches, we don't just order one. We have three (two are deserted).

And when we decide, after months of silence, to issue statements about our financial problems, we do not whisper honeyed words: we drop noisy, clattering bombshells.

So it was on Wednesday night, just as the lights went out at the start of the lengthy Eid al-Adha holiday and the city's expat banking legions headed off for a break at their favoured Shangri-la or Kempinski resorts along the coast.

A little background: everyone knew that Dubai Inc, the mixture of royal and government holding companies that dominate the economy, owed a lot of money, but no one worried because everyone knew it had plans in place to repay them.

Not so, as it turned out. The brief statement was short but, in the words of one banker, desperate. "Dubai World intends to ask all providers of financing to Dubai World and Nakheel to 'standstill' and extend maturities until at least 30 May 2010."

In a nutshell, the government was asking banks to let two of Dubai's most famous companies hold off on their mortgage payments. Since they are state-owned, the announcement suggested the city itself was in trouble: governments aren't supposed to default on their debts, and when they do – as Argentina did in 2001 – it causes chaos around the world.

Yesterday, the creditors didn't know whether to laugh or cry. On the one hand, this is an undoubtedly serious situation. Western banks, and the construction firms that built those castles in the sand, are exposed to serious amounts of money. Dubai's total government owings are officially $80 billion, unofficially twice that, and the cash flow to pay that back is a mystery.

More to the point, confidence had returned to the city's dealings, its companies were rehiring, precisely on the same assumptions that have seen rising property prices in London and rising stock markets everywhere. The crisis was over, meltdown averted, and growth was back.

But if Dubai's revival turns out to be fake, perhaps the rest is, too?

Yesterday, share prices around the world fell as the news was absorbed. One analyst asked whether this was the "new Lehman brothers".

On the other hand, the opportunity for a spot of schadenfreude is also great. There was always a culture clash between the two halves of Dubai's expatriate face, between the smart financiers, lawyers and other professionals who were putting down the structure of the revamped city, and those for whom it was being built.

Long-standing residents – none, of course, will be named, as they are ever so discreet – often looked with horror as their clients used the money they had raised to build glitzy villas on Palm Jumeirah, Nakheel's showpiece development, and then give them away in staged publicity stunts to David Beckham.

When Kylie Minogue performed to invited Hollywood celebrities at the opening of Sol Kerzner's kitsch Atlantis Hotel, the public relations merchants beamed assiduously. Those who didn't have to be there turned up their noses. "Disney Dubai," one British expat said to me later. He prefers to commute from Sharjah, the neighbouring emirate, which doesn't allow alcohol, let alone invite pop stars.

"It seems odd to have ended up somewhere so full of tackiness, but that's how it is," one of Dubai's most publicly bullish bankers put it, slightly more tactfully.

One man who could be forgiven for schadenfreude is Christopher Davidson. A writer and academic, his book Dubai: the Vulnerability of Success, warned long before crisis struck that the city had built an unsustainable, hubristic model. He is scathing about the emirate's loyal westerners.

"This is one of the perils of having a large mercenary population," he said. "They will say what you want to hear to your face. Then when it all goes wrong, they go home."

Many have indeed gone home, though not in such large numbers as once feared. You can still see cars covered in dust at Dubai Airport, where owners have abandoned them as they flee, anxious that shortfalls in hire purchase payments could land them in the city's notorious debtors' prison.

"At least I mailed my keys back," said Nicholas Down, an estate agent.

Mr Davidson is even more scathing of Dubai's latest announcement, partly because he says it is 12 months too late, and partly because it does not show that lessons have been truly learned.

All year, Dubai's charismatic ruler, Sheikh Mohammed bin Rashid al-Maktoum, has angrily brushed off reports of imminent doom. In September, when asked if he admitted to any mistakes, he said not.

Earlier this month, he said bluntly that those who talked about much-rumoured strains between Dubai and its sister city Abu Dhabi over the crisis should just "shut up".

Mr Davidson said that finally admitting to the full extent of the crisis on the eve of a public holiday was such an "obvious trick" it suggested the city thought it could still "get away with it". It was self-evident, though, that investors still needed reassuring.

"Does anyone in the Dubai government have a grip on the situation?" he asked. "If not, should anyone put their money in the place?"

The irony is that a large part of Dubai Inc still works remarkably well – the bit that hasn't had anything to do with David Beckham, or Paris Hilton, who filmed her latest television show here, or the British wannabes who bought unbuilt holiday homes for the sun-sea-and-sand lifestyle.

Dubai's port is the biggest in the Middle East. Emirates Airlines still makes profits. Passengers at the airport are increasing in number. The city's traders – Iraqis and Iranians, Lebanese and Pakistani – wheel and deal with a lot more ease and comfort than they would at home. "Dubai," one Indian businessman replied when asked which was the best Indian city in which to do business.

Dubai's own business leaders are reluctant nowadays to come forward for interview. For this article, a spokesman for the department of finance – another western public relations consultant – was prepared to defend the system.

"They have taken this step," he said. "It's a long-term decision which has been taken to restructure the financing. It's a process that has just begun. It will take some time to work through."

But even supposing the creditors hold off in their demands – and what choice do they have? – they can hardly send Sheikh Mohammed to debtors' prison: it is still anybody's guess as to where the repayments will come from. A frightening proportion of the debts are due to be repaid in the next three years.

The answer to date has been Abu Dhabi, which sits on a sea of oil and foreign exchange reserves. On Wednesday, its banks said they would stump up $5 billion – though apparently with the proviso that it is not poured down the "bottomless pit" of Nakheel.

Its own royal family regularly puts on a united front with Sheikh Mohammed – the two houses are tied by marriage. A bail-out is surely on its way, but no one knows what conditions may be attached.

When the Ferrari owners set off last month, they did not invite the press, and deliberately left before most residents were up. Perhaps there is a new modesty afoot after all.

But then perhaps they were not going to watch the motor racing at all: maybe they were off to Abu Dhabi to ask for their car loans to be repaid, and their tanks to be filled with petrol.

[Mil]

Let me shed a tear....

[Sanket]

A little more Dubai news ...

From Bloomberg: Dubai Debt May Be Higher Than $80 Billion, UBS Analysts Say (http://www.bloomberg.com/apps/news?pid=20601087&sid=aHY2zzjo8WdQ&pos=4)


Dubai... may owe more than the $80 billion to $90 billion in liabilities assumed by investors, UBS AG analysts said in a note.

“Perhaps Dubai’s debt includes sizeable off-balance sheet liabilities that imply a total debt burden well above the $80 billion to $90 billion markets have estimated so far,” real estate analyst Saud Masud wrote in a note yesterday. “This could imply that the debt issued by Dubai in recent weeks is insufficient to meet upcoming redemptions.”

And more: RBS Led Dubai World Lenders, HSBC May Have Most at Stake in UAE (http://www.bloomberg.com/apps/news?pid=20601087&sid=avsdA7viNEtE&pos=2)


RBS, the largest U.K. government-controlled bank, arranged $2.3 billion, or 17 percent, of Dubai World loans since January 2007, JPMorgan said in a report today .... HSBC, Europe’s biggest bank, has the “largest absolute exposure” in the U.A.E. with $17 billion of loans in 2008, JPMorgan said ...

=====================
UAE faces up to $184 billion total debt: BofA-Merrill Lynch (http://www.reuters.com/article/ousivMolt/idUSTRE5AQ28C20091127)

[Sanket]

Let me shed a tear....

Lot of people are going to shed tears....;)

[Kenneth]

In the wider context of anything and everything this might be a bad thing - all the same :D

[Sanket]

Keiser on 'Tsunami alert': Dubai debt crisis awakes storm? - youtube (http://www.youtube.com/watch?v=cSWSwhn-AWc)


UK in deep trouble. Watch the video. Gold Price will shoot further...:D

[bararallu]

Machiavelli can be read by economists as well as politicians. When you rent out everything, you don't own anything.

[Sanket]

Lot of people are going to shed tears....;)

Indian's are also going to shed some tears.

Govt puts shipping sector on alert post Dubai financial crisis (http://economictimes.indiatimes.com/news/news-by-industry/transportation/shipping-/-transport/Govt-puts-shipping-sector-on-alert-post-Dubai-financial-crisis/articleshow/5276214.cms)

NEW DELHI: The government today said it has sought detailed information from all ports associated with DP World to assess the impact of Dubai debt crisis on Indian shipping sector.

"Alerted after reports of Dubai financial crisis, we have begun an internal examination of the situation. DP World, owned by Dubai government has significant presence in Indian ports," a senior Shipping Ministry official told PTI.

[Sanket]

Dubai default risk could be a big US bank problem - Nov. 27, 2009 (http://money.cnn.com/2009/11/27/news/companies/Dubai_bank_risks/index.htm)


I am missing the Popcorn Smiley...:(

[bararallu]

Peek Oil, which is just the nature of things, is pretty much here. 50 Years UAE will be equivalent to Angola. I kid you not, better that people understand that now not later. When you marry incompetence to routine laziness to thousands of years of inbreeding, not to mention a cultural cant-do spirit, and (however mild, yeah right) gender apartheid, you get what you get. When all those foreigners leave the Arab satrapies, there will be sand, tents and camels, oh hummus and baksheesh of course as always. Perhaps they can harness the Jinns with the Pakistani "scientists", as in the Hazrat Suleiman Jinn Power Plant, ROFL.

BTW, there is quite a bit of news now that all those Billions the US tax payers have sunk into Iraq on Infrastructure projects are all for naught, the Iraqis cant maintain the new stuff! The last bastion of competent people (and please note Iraq had significantly more competent people than the Sodi Arabians and the rest of the satrapies), are all gone! Not that even that elite class would be competent enough to run a modern sewer system, electric grid, not to mention top of the heap hospital w/ western diagnostics equipment. Nope... down the f'n drain.

Someone should have mentioned this to W... the ME, it's neither Japan nor Germany.

[Sanket]

bararallu,

Saw this comment in another forum & I think he is right.


US is in a unique position as its got the strongest navy in the world. If it defaults no creditor can enforce anything. They will just eat their losses.

The same is not true for third world states. First their markets are wrecked by speculators, then the IMF moves in for the kill offering loans to shore them up. These loans come with a ton of strings. They are made to sell off their most profitable assets at the cheapest price to multi-national companies and put on a repayment treadmill. In short, they are made to work their debts off.

US will not be working its debts off I assure. It will just be inflated away or defaulted on or something. That's why the US govt is collecting all the bad private debt onto its balance sheet so it can blow it up in one Big Bang.

[Sanket]

Peek Oil, which is just the nature of things, is pretty much here. 50 Years UAE will be equivalent to Angola. I kid you not, better that people understand that now not later. When you marry incompetence to routine laziness to thousands of years of inbreeding, not to mention a cultural cant-do spirit, and (however mild, yeah right) gender apartheid, you get what you get. When all those foreigners leave the Arab satrapies, there will be sand, tents and camels, oh hummus and baksheesh of course as always.


The end result will be that they shall become the Bedouins what they always were. Nomadic, poor and hopeless.

[bararallu]

bararallu,

Saw this comment in another forum & I think he is right.

I think the poster on that other forum is being extremely naive..not to mention cynical (a marxist? perchance). Most debt in the US is owed by foreign banks, in many cases not strategic allies of the United States. The system is also a lot more transparent than one may think, that is how economists and traders alike work on the indices that are presented daily in some cases and yearly at the worst.

Plus his point is conflated: introducing military might into the equation- typically when the navy is engaged, the time for economic inter- mechanics has for the most part ended (albeit there are some glaring exceptions of course).

The answer is the guns are always pointed inwards first, like in China and the Soviet Union or Iran. You also don't need that many guns. It's not foreign policy that dictates most of a Nation States economic solvency, it's sane ongoing management and long term investments into infrastructure. If the poster thinks we will return to Mercantilism globally then they should say it outright and then defend their position. They maybe right, I dont know, but merely referring to the US Navy in a non sequitur way debases their argument. It's not the US Navy that secures American solvency it is the magnetism that draws the best and brightest from across the world, causing other places to suffer brain drain... as it is true vis-a-vis Israel, and India all the same. The ability to make new things, and maintain infrastructure is what is essentially missing in Dubai etc. They are at apex in the United States in contra distinction- to an extent that the Democratic party in the US believes they can erode that positioning for their own craven power positioning, even in that case the US will still have that position for years to come.

[bararallu]

The end result will be that they shall become the Bedouins what they always were. Nomadic, poor and hopeless.

Bedouins are some pretty happy folk, if they are left alone to tend their sheep and goats. Most do not want any part of modernity, but eventually modernity will convert their little pasture land into a mall parking lot. Too late then...

[Sanket]

Are you saying America is going to give the money back to countries like China ?

I think that is never going to happen & I am also waiting for the Trade War to Start.

[bararallu]

Are you saying America is going to give the money back to countries like China ?

I think that is never going to happen & I am also waiting for the Trade War to Start.

Yes it absolutely will, it may not be direct but it will be fully equivalent.

Monetary policy is just one side of the bill man... trade is far more varied and there are immense amount of pivot points on that variation (environmental aspects for example, joint ventures for another), all can be reduced to a $ figure. And the Chinese (not to Mention Japanese and the rest) have good bean counters to understand that they are getting their due.

BTW, pulling their 'stock' out of the US basically destroys their own economic growth, so that will not happen in it's own right. The actual business interests in China will be against a trade war- who cares if you have all this money if you cant do anything with it?

[Sanket]

Let's wait & watch. Trade war will be started by America.

China has started interfering in your domestic policies - Health Care.

[Mediocrates]

Since Dubai forbids any dealings with Israel, Israel will be largely passed over by this calamity like it's Pesach.

http://haaretz.com/hasen/spages/1131347.html

[bararallu]

ok... and now for another view on the show me the money. (http://scienceblogs.com/gnxp/2009/11/hu_jintao_vs_barack_obama.php#more)

[wat0n]

Since Dubai forbids any dealings with Israel, Israel will be largely passed over by this calamity like it's Pesach.

http://haaretz.com/hasen/spages/1131347.html

It might still affect Israel (and other emergent economies) if investors become more risk-averse, but it's unlikely.

There's a somehow higher chance that emerging markets (stocks) won't perform as good as they have been doing until now, but even that is not certain, I guess it depends if Dubai defaults or not.

[bararallu]

Wat0n,

Israel has long emerged as an economy ;).

[wat0n]

Wat0n,

Israel has long emerged as an economy ;).

It's still considered an emergent economy by some, but not for long. (http://www.mscibarra.com/news/pressreleases/archive/20090615_pr.pdf)

South Korea is also considered an emerging economy, so I woudn't worry: The classification is based mostly on how its financial markets work rather than human development.

Now, for "real" emerging economies like my country, this may have some risks. Though specifically in our case the gov't saved some 20% of GDP when copper prices were high, so I don't think this should affect us too much.

[Sanket]

http://www.bloomberg.com/apps/news?pid=20601087&sid=ayJjN5otYtH0&pos=4


Within Europe, the largest portion of U.A.E. exposure is held by U.K. banks with $49.5 billion:D followed by France with $11.3 billion, CreditSights said, citing data from the BIS.

Royal Bank of Scotland Group Plc was Dubai World’s biggest loan arranger since January 2007, according to JPMorgan. RBS, the largest U.K. government-controlled bank, fell 4.4 percent to 33.18 pence.

[Sanket]

Let's wait & watch. Trade war will be started by America.

China slaps duties on U.S., Russian steel (http://www.reuters.com/article/idUSTRE5B93PG20091210)

Thu Dec 10, 2009 12:11pm EST

BEIJING/MOSCOW (Reuters) - China, the world's biggest steel consumer, said it will impose anti-dumping duties of up to 25 percent on specialized steel imports from Russia and the United States, stepping up a trade row with Washington.

[Sanket]

US urges China against sanctions (http://news.yahoo.com/s/afp/20100201/pl_afp/ustaiwanchinamilitary)


by Shaun Tandon Shaun Tandon – Mon Feb 1, 4:24 pm ET

WASHINGTON (AFP) – The United States urged China on Monday not to slap sanctions on US companies selling arms to Taiwan, as the firms tried to stay out of President Barack Obama's biggest row yet with Beijing.


---

[Sanket]

Let the fight begin (http://www.hindustantimes.com/editorial-views-on/bigidea/Let-the-fight-begin/Article1-499468.aspx)


During last year’s G-20 summit in Pittsburgh, US President Barack Obama said that “global fiscal imbalances” had to be addressed for the world to get over its economic hangover. This wasn’t a Madison Avenue turn of phrase. But in its nerdiness was embedded a big geopolitical subtext. This manifest itself in the next few months as the US and China go for each other’s jugular. Godzilla versus Destoroyah. It doesn’t get bigger than this.

The origin of what one Washington lobbyist called “a tectonic shift regarding China in the US” is a consensus within the Obama administration that the source of the financial crisis, the reason the recovery has been jobless, and the primary reason why the crisis may happen again, is “fiscal imbalance”.

This school of thinking argues that during the Lehman Brothers Era the world was economically divided between those with China-like qualities and those with US-like ways and means. The China camp exported like crazy and used the resulting currency reserves to subsidise consumption in the American-style countries. The Americans lived off the cheap credit, imported like crazy but also used the money to blow up asset bubbles. Such imbalances are not unknown. In a market environment, however, the resulting imbalance corrects itself through exchange rates. But in one where the Chinese government pre-empts the market and deliberately keeps the yuan low, the result is crisis.

Washington pundits say the US has concluded that putting the Great Recession out of the way, once and for all, means putting the Great Currency Fix out of the way as well. The Democrats’ favourite Nobel economist Paul Krugman has calculated that Chinese ‘mercantilism’ will cost America 1.4 million jobs over the next few years.
China must export less if the US is to save more. That means the yuan must rise. This, not love, will make the world spin this year.

Obama held his fire earlier because he needed Chinese assistance on a host of other international issues. Beijing was less than helpful on Iran and North Korea. It humiliated Obama during his November visit to Beijing, though he angered many in the US by refusing to meet the Dalai Lama beforehand. Insiders say Obama described the atmosphere of his meeting with Hu Jintao as “frigid”.

The straw that broke Obama’s patience was Copenhagen. The US believes it had a pre-summit deal with China on climate change. But Beijing reneged and dumped the US. It then rubbed salt in the backstab. It sent low-level officials to meetings with Obama and prepared the ground for the US president to go back home empty-handed.

The Danish caper proved a step too far. The Democrats, remember, include human rights activists, green types, labour unions, Free Tibet people and a lot of people uncomfortable with the Chinese government. Their congressional supporters have been restrained from taking action against Beijing only because the Obama administration would whisper the words ‘climate change’ and ‘T-bills’ to them.

Copenhagen removed the first inhibition. House Speaker Nancy Pelosi is a known Sinophobe in the US system. But she kept quiet during her visit to China last year. “You know why? Because climate change was more important to her,” said a former member of the US climate change negotiating team. “Now she sees no reason to hold back.”

The second inhibitor, the T-bill issue, refers to the fact that China holds a quarter of the US public debt in the form of some $800 billion worth of US Treasury bills. The standard view is that China is now ‘the US’s banker’ and has the sole superpower by the short and curlies.

This was always exaggerated. The present view in Washington is that it doesn’t matter. If China dumps Treasury bills, it will stab itself because the value of its holdings will fall and US consumers will buy less Chinese stuff. More to the point is that the world is knee-deep in capital right now and there are enough alternative buyers of T-bills. Krugman is one of those who argue the T-bill threat is a bluff. “It would probably weaken the dollar against other currencies — but that would be good, not bad, for US competitiveness and employment. So if the Chinese do dump dollars, we should send them a thank you note.”

The US is preparing to fire broadsides into the Chinese economy. The ebb of any political support to at least keep Beijing cooperative was evident when the US imposed tariffs on imported China tyres and steel. It was overt during the recent contretemps between Google and the Chinese authorities over internet censorship. The White House publicly supported the US search engine company. The lobbyist explained the significance: “Recall that along with labour unions, Hollywood, the Jewish community and trial lawyers, Silicon Valley — and Google specifically — is one of the financial pillars of the Democratic Party.” China is responding in kind. “Note that China is not sending anyone senior to the latest Permanent 5+1 meeting on Iran.”

A senior US multinational executive said that the Obama administration has warned US companies to “button down” their investments in China by April. “That’s when the fur is going to fly.”

When others close to the Obama administration were asked whether the US president would try to restrain the momentum against China. They said, “He believes Beijing has done nothing but kick him in the teeth since he became president.” :D

[Sanket]

Financial Times:China to lose ally against US trade hawks (http://www.ft.com/cms/s/0/97b29e4e-351c-11df-9cfb-00144feabdc0.html)


Myron Brilliant, senior vice-president for international affairs, who has previously helped to protect Beijing from hawkish trade policies, told the Financial Times: “I don’t think the Chinese government can count on the American business community to be able to push back and block action [on Capitol Hill].”
...
Mr Brilliant said corporate America’s attitude had changed in response to a range of “industrial policies” pursued by Beijing, including the undervaluation of the renminbi, which made it harder for US companies to do business and compete with China.


Mr Brilliant has long supported China, including lobbying for China to join the WTO.

--

WaPo: China's commerce minister: U.S. has the most to lose in a trade war (http://www.washingtonpost.com/wp-dyn/content/article/2010/03/21/AR2010032101111.html)


China's commerce minister warned the United States on Sunday that if it launches a "trade war" against China by levying punitive tariffs on Chinese imports, the United States will suffer the most.
...
"You're not going to get 1.3 billion Chinese to change by insulting them," [Commerce Minister Chen Deming] said. "Could it be related to upcoming elections? I don't know. Because economically, it makes no sense."
...
"[Obama] wants exports to double in five years, but I don't know whom he is going to sell them to."