Dubai World, Islamic hedge funds

Dubai World negotiations continue to be released in bits and pieces to the media, and they may or may not be totally accurate. However, the latest release is that Dubai World will be split into 'good' and 'bad' companies and dealt with in separate ways. Nakheel and Limitless the domestic and international property companies within Dubai World, respectively, will be put into the 'bad' company as their prospects are more bleak with a collapse in real estate markets globally in the past two years. The 'good' company would include DP World, Ports Customs and Free Zones and Dry Docks. Statements in the past have separated these two groups of companies and it appears that that will be formalized in the proposal.

This could help move the restructuring on for the 'good' companies if they are separated and their debts are repaid in time while the 'bad' companies are worked out. However, I would imagine that the many large banks have exposure to both 'good' and 'bad' companies. This could provide more flexibility in the negotiations if they can know ahead of time that the debts of the 'good' companies will not have any haircuts requested. However, it does not address whether there will be a government guarantee on some, but not all, companies. Some proposals being floated in the media involve a delayed repayment (in some cases for the 'bad' companies with a haircut of 20%) with repayment guaranteed by the government of Dubai. This will increase some certainty, but there are still questions about whether Dubai would be able to make good on this guarantee without additional support from Abu Dhabi. The restructuring is proceeding, but is likely to continue for months if not years.

Islamic hedge funds have been slow to develop because there is not agreement on the contract, arbun, used by Shariah Capital to synthesize a short sale. Muddassir Siddiqui, a Shari'ah scholar criticized the use of arbun telling Reuters that "The payment of arbun does not transfer title to the buyer. The principle of the sharia is that you are not allowed to sell something that you don't own". There will be an uncertain for the future of Islamic hedge funds if such important aspects are disagreed on among scholars. However, it is likely that if there is broader approval of the arbun short selling contract, then the first mover advantage could be substantial.

Other News

• Sukuk issuance grew from $14.13 billion in 2008 to $20.15 billion in 2009, with half of the 2009 issuance coming from Malaysia according to the Malaysian ambassador to the UAE.
  
• Kuwait's special circuit court has granted The Investment Dar's request for protection under the financial stability law.
  
• Quarterly changes to the Dow Jones Islamic Market Indexes were released.
  
• The Jordanian government is considering ways to make sukuk issuance possible in the country.