Monday, November 30, 2009

Dubai Monday Update

The fallout from the Dubai debt problems continues with the stock markets in the region falling 7% (Dubai) and 8% (Abu Dhabi). There remains little clarity on what will eventually happen, although it is becoming increasingly clear that the companies within Dubai World (with the possible exception of DP World and Jebel Ali Free Zone) will not receive a bailout financed by Abu Dhabi, at least not without some continued pain for Dubai. The Nakheel sukuk—following the request for the sukuk to have trading suspended on the NASDAQ Dubai—is not likely to be resolved neatly, because Nakheel is not believed to have the money available (nor does Dubai World) to repay the over-$4 billion due on December 14 (although it would not technically be in default until December 28).

The Jebel Ali Free Zone, which issued a sukuk of its own a few years back, did make a periodic payment today on its sukuk of between AED 125m to 135m ($34-37m). Following this, Dubai World changed tone slightly and has announced that it is negotiating a restructuring of $26 billion in debt, including $6 billion in sukuk.

It remains a question whether there will be terms agreeable to both Dubai World and the banks to which it owes debt (including reportedly a large chunk to British banks including Standard Chartered and HSBC). Tomorrow will likely not treat the regional markets any kinder than today, although it looks like the moves by the UAE central bank have limited the carnage to the stock markets and there have not yet been any reports of any runs on the banks.

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