Dubai default threat rattles world stocks

[Cheetah786]

Global stock markets tumbled Thursday on mounting anxiety over a debt default request by Dubai and tighter lending conditions in China, analysts said.
London lost 1.86 percent to 5,264.97 points in late morning trade but was suspended at about 1030 GMT owing to a technical issue.

The London Stock Exchange said it was investigating the "root cause" of the problem and would update investors when it had further information.

Elsewhere, Frankfurt dived 1.80 percent to 5,698.99 points and Paris plunged 1.89 percent to 3,737.06 points at the half-way stage.

In Asia, Beijing nosedived 3.62 percent, Tokyo fell 0.62 percent and Hong Kong closed 1.78 percent lower. Chinese shares were also hit by the prospect of tighter banking rules and worries about monetary policy next year.

New York markets is closed Thursday for the Thanksgiving Day holiday in the United States.

"We have two major factors weighing on equities and other risk markets: Dubai's call for a moratorium on its debt repayment to May and more stringent capital adequacy requirements for Chinese banks -- but Dubai is bigger," David Morrison, an analyst at financial betting firm GFT, told AFP.

The government of Dubai shocked financial markets on Wednesday when it said it would ask creditors of its Dubai World conglomerate for a debt moratorium of at least six months.

The Dubai government announced that it would revamp the Dubai World group and wanted its lenders to extend its maturing debt until at least May 2010.

Dubai added that it had raised five billion dollars in a new bonds issue aimed at helping meet its debt obligations.

"Dollar weakness ... sent Asian markets plunging, which then took European exchanges with them," said Xavier de Villepion, an analyst with Global Equities in Paris.

In addition, the partial default by Dubai "fed a climate of insecurity and crisis of confidence at a time when fears are mounting about excessive public debt."

As equities sank heavily, investors sought safety in the bond market and gold, which struck yet another record high point.

"It's causing a mini flight-to-quality as US, European debt gets bought as a relative safe haven," noted Morrison.

He added: "If (Dubai) had given the debt markets more warning, then there would be less of a panic now."

Meanwhile, ratings agency Standard & Poor's said the development could be considered a default and downgraded a raft of Dubai government entities including Dubai World.

"The rating actions are the result of the announcement on November 25 of the restructuring of the debt obligations of Dubai World and its subsidiary, (construction group) Nakheel," S & P said in a statement.

"In our view, such a restructuring may be considered a default under our default criteria, and represents the failure of the Dubai government to provide timely financial support to a core government-related entity."

Barclays Capital analyst Paul Robinson warned that the issue of Dubai could contribute towards a "serious" pullback in global stock markets.

Others warned that it could take more than a decade for investor enthusiasm over Dubai to return, as a result of this week's development.

"Dubai could not undermine either itself, or global perception any further as a place not to do business in at the moment," MF Global analyst Manus Cranny told AFP.

"Quite literally, this geographic region is now looking as a mirage in stability terms."

He added: "It is the much longer term implications on funding, confidence and capital raising that will take a decade or more to re-establish.

"This last-minute moratorium on debt repayments at Dubai World is unacceptable has all the smacking of an Ireland -- nay worse, an Iceland -- in the making.

"The two regions may be polemic in climate but mirror images in terms of credit and ability to meet their bills."

Elsewhere on Thursday, gold soared to a record high of 1,195.13 dollars an ounce after a purchase of IMF gold by Sri Lanka's central bank, traders said.

The precious metal has also won support in recent weeks from inflationary fears, the weak US currency and increasing moves by central banks to diversify assets into gold.
Dubai default threat rattles world stocks

 

[Cheetah786]

DUBAI: A senior Dubai official defended on Thursday his government’s proposal to suspend debt payments by its Dubai World conglomerate, as global stock markets fell amid fears of widespread default.

The suspension of payments on Dubai World was ‘carefully planned’ and done in full knowledge of how the markets would react, a senior official said on Thursday.

‘Our intervention in Dubai World was carefully planned and reflects its specific financial position,’ Sheikh Ahmed bin Saeed al-Maktoum, chairman of the Supreme Fiscal Committee, said in a statement.

He added that ‘further information will be made available early next week.’

The government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react. We understand the concerns of the market and the creditors in particular.’

‘However we have had to intervene because of the need to take decisive action to address its particular debt burden.’

Ratings agency Standard and Poor’s described the debt moratorium as a default.

European stock markets dropped sharply on the news, with European exchanges particularly hard hit. Paris and Milan each plunged by more than three per cent in afternoon trading on Thursday. US markets were closed for the Thanksgiving holiday.

Dubai has seen a surge in extravagant building projects, with vast skyscrapers springing up in the desert state, but it has suffered in the global financial crisis.

Most of its debt is held by state-backed companies.

Dubai World, which reportedly has 59 billion dollars in liabilities, owns a range of businesses including international ports operator DP World and giant property developer Nakheel.

Until recently the jewel in the crown of Dubai’s construction boom, Nakheel was due to pay off about 3.5 billion dollars in maturing Islamic bonds in December.

Sheikh Ahmed insisted that ‘unprecedented growth, in Dubai and across the (United Arab Emirates), over the past decade has helped lay the foundation for what is now a broad-based sustainable economy beyond just natural resources.’

Like most global cities, Dubai has experienced its share of economic and social challenges in this global downturn,’ Sheikh Ahmed said. ‘No market is immune from economic issues. This is a sensible business decision.’

But he said ‘economic fundamentals, such as our highly developed infrastructure, strong transport and communications hub and regional financial centre will ensure Dubai remains an attractive regional market.’

Dubai’s move triggered fears of a domino effect across the emirate’s indebted state-run corporates, pushing debt rating agencies to slash the grading of Dubai companies.

The fear of Dubai’s default ‘fed a climate of insecurity and crisis of confidence at a time when fears are mounting about excessive public debt,’ said Xavier de Villepion, an analyst with Global Equities.

Moody’s rating agency said it downgraded six government-related companies, including Dubai World entities, while Standard and Poors downgraded the ratings of five of those companies.

‘In our view, such a restructuring may be considered a default under our default criteria, and represents the failure of the Dubai government (not rated) to provide timely financial support to a core government-related entity,’ S and P said.

While the announcement was made after the closing of Dubai’s stock market for a long Eid holiday, the value of Nakheel’s 2009 bonds dropped by 27 per cent, according to EFG-Hermes regional investment bank.

Dubai’s total debt reached 80 billion dollars last year, of which government companies owed some 70 billion dollars.

The announcement came on the heels of another, that Dubai had secured a further five billion dollars through a new bond issue, fully subscribed by two banks controlled by the government of Abu Dhabi.

The new bonds demonstrate that Abu Dhabi, the oil-rich partner in the UAE, is still ready to help Dubai, but the extent of that support remains unknown. —AFP

 

[Awesome]

Next week's the national day. Debt rescheduling commonly happens all the time, but the fact that its Dubai doing it, there are a lot of oohs and aahs about the whole deal.

The lack of liquidity is hurting Dubai. Everything is in the form of Mega Projects that are half way done at the same time all the local banks have stopped giving home loans to the common man, which stop the possibility of churning up the trade in Dubai's economy.

I think Dubai is still very strong, if it stops thinking too big and consolidates all its strength. It also needs to rework its strategy of remaking Dubai into a westerner's paradise and come back to the Pakistani, Indian formula which initially gave it all its success.

The westerners are here to party, they DO spend a lot of money, but all of it is earned in Dubai itself. Maintaining this western lifestyle, lake front, ocean front, beach front properties, Ultra expensive restaurants they are all taking a toll on the economy because Dubai needs to spread itself too thin to maintain all of this.

They need to realize that they've achieved enough. It's enough for the next 20 years or something.

 

[Vassnti]

.

The lack of liquidity is hurting Dubai. Everything is in the form of Mega Projects that are half way done at the same time all the local banks have stopped giving home loans to the common man, which stop the possibility of churning up the trade in Dubai's economy.

.

Problem is credits dried up, projects are half finished, the Dubai property bubble has burst and they need to come up with 15 billion in the next few months. The property speculators i couldnt care less about but what i do wonder is how all the workers from places like pakistan that made the Dubai "miracle" possible are going to be treated.
The first people i can see loosing are the low paid workers owed six months pay sudenly being kicked out of the country.