mantronic

In the unlikely event that anyone is interested in why Im so bearish on Dubai, aside from the impending property crash, the main issue is Dubais obession with worrying amounts of debt, and debt to equity ratios. As you can see from the article below, its not something Ive dreamt up and there are news stories every few weeks about in the western financial press.

If you look back at my post of last Aug, apart from the crap about dust, you will see I was concerned about debt, primarily because the project that had made the offer looked to be financed entirely on many billions of bond of the type in the article below. What I found was a far cry from the "paid with oil equity" scenario I expected.

In fact the amounts squandered on, and by, locals and rainbow sheik types seemed to result in a not poor but not loaded country.

In any event, it is *somewhat* possible that the 20b bonds due this year could be the trigger for the near depression like crash in dubai. However I expect AD, even with oils so cheap, may still be able to help dubai maintain its current shallow slide until next year.

(Note following financial news is like a hobby for me and this is just something I found on another forum)

http://www.bloomberg.com/apps/news?p..._D4&refer=home

Dec. 31 (Bloomberg) -- Dubai’s corporate bonds have fallen to a level where they are pricing in an economic “depression,” according to ING Investment Management’s head of fixed income.

“Giving a price for Dubai Inc.’s biggest names is not easy as investors are nervous about investing in any institution,” Nish Popat said in an e-mailed reponse to questions. The bond market “appears to be pricing in a depression” with “extreme” levels for debt, he said from his office in the emirate.

The largest state-owned companies in the United Arab Emirates -- of which Dubai is one of seven sheikhdoms -- have $20 billion of debt due next year, according to a Merrill Lynch & Co. report published in October. The yield on the three-year Islamic bond issued by Nakheel Development Ltd., which is building three palm-shaped islands in the Persian Gulf, soared to 32 percent, from 5 percent in January.

Sales of Shariah law-compliant sukuk bonds fell to a three- year low of $13.6 billion in 2008 as the credit crisis spread to the Middle East. That’s down from a record $30.8 billion in 2007, according to data compiled by Bloomberg.

Investors shunned Dubai corporate debt amid the worst financial crisis since the 1930s. More than $1 trillion of bank losses and writedowns worldwide strangled lending in the Gulf state, hurting its booming real-estate market, while the more than 70 percent drop in oil since July’s peak also trimmed government revenue.

Still, the exodus from Dubai bonds means there’s good value for those investors willing to buy and hold the notes, according to Popat.

‘Once-in-a-Lifetime’

“Some of the short-duration paper offers exceptionally good value,” Popat said. “The panic by some investors to sell these assets at such levels offers a once-in-a-lifetime opportunity to longer-term investors.”

Companies’ borrowing costs have also risen as the credit crunch deepened, but Popat said he’s “cautiously optimistic” about prospects for primary bond issuance in 2009.

“Certainly, companies both conventional and Islamic will be able to borrow,” he said. “The question is whether they can accept the new pricing levels.”

The Dean

You're quoting an article that quotes Nish Popat?? Where was he interviewed - The Rattle Snake??

More seriously - there's nothing new in the article (a bit like your posts really), and it's been well flagged for some time that Dubai debt is essentially now regarded as having 'junk bond' status. The three-year Nakheel bond will as you suggest be the benchmark.

The sukuk sales figures are interesting - when the oil price soared from mid-07 to mid-08, many regional entities simply became cash-rich, and didn't need to issue. It's different now of course..........

Thanks for the article, all the same.

mantronic

Cheers.

Like I said Im no expert its just a hobby. Never hears of Nish, but he did sound a bit like he had his nose out of joint. I mean Im sure the bonds price in alot of risk, but to say "depression" seems a long bow.

benzonar

Why are you so bothered about Dubai though? I just don't understand it unless you have some sort of chip on your shoulder.

I was offered a full time position in Saudi which I decided not to take, but I don't spend my time obsessed with banging on about it.

So you mentioned something in Aug, no big deal. I put that on a par with me predicting that the sun will come up tomorrow. It doesn't mean I will then spend the next few months going on about how I told you the sun would come up and all those who said "well we didn't expect anything else" were deluded.

If it makes you feel better then congratulations, you are the first person I will come to for investment advice. I'm sure someone who earns Aus$2000 a day and still rents and drives a Mazda 3 is the type of person I should be listening to.

So guru, which company should I spend all my money on that I don't have to spend on tax or accommodation or a car because my company provides it all?

mantronic

Why are you so upset about a news story on dubai bonds? You live in utopia remember!

As for "still rents", make that "rented for the last 2 years as the property crashes were a no brainer". And good luck in the unlikely event you own any property in this period!

"So guru, which company should I spend all my money on that I don't have to spend on tax or accommodation or a car because my company provides it all?"

Just FYI - this sentence make no sense - I get the bit about you wanting to spend money, but you may want to put it toward some english lessons and anger management classes.

admon

As The Dean (and others previously including myself) has already stated, this is all old news.. but obviously it all feels gloriously new to Mantronic..

But chill, we have done all the trading of insults.. we know the nature of his posts now before we even read them..
he just wants to rile people and you are biting..

IndieG

I think what the media reports (both locally and internationally) does not reflect even 10% of the problems here...

I know people who have left Dubai, abandoning their mortgaged homes (negative equity kicking in big time). And I am not speaking of under construction/off-plan properties, but villas in developments such as Springs/Ranches. I feel really bad for them - they were not speculators - just trying to get away from greedy landlords and hoping for some stability living in their "own" homes

Jeeper

I was reading a gulf news article the other other day re: Dubai S&P(I think) rating and it was given AA2. Reading through the article though it seemed this was all based on dubai being supported by Abu Dhabi. Is that a given?

Would be good to know what the rating would be as a stand alone entity.

admon

I'm a bystander like yourself, so definitely not an expert, but I think that dubai doesn't have its own credit rating - but remember reading recently that they were looking to have one by mid 2009..

that will be fun..

IndieG

Dubai is not rated....only Dubai Holding and DEWA are rated (and possibly Nakheel - not sure)

PS: Am not an expert myself - my hubby is...

Jeeper

Trying to find the weblink to the article but it certainly read like a dubai rating....it specifcally stated that a lage part of the reason for it's rating was that it had the financial backing of Abu Dhabi....maybe i read it wrong....still searching.

IndieG

Some news here:

http://www.thenational.ae/article/20...813/1005/SPORT

Wonder why the url has "SPORT" at the end..

W10

http://www.gulfnews.com/business/Rea.../10271786.html

interesting interview with Al Fahim from Hydra Properties...who appears to be calling for AD to repeat the mistakes of Dubai...with regards to not caring about the long term health of the sector as long as you can make a quick buck from having a speculator driven market...

How are real estate regulations in Abu Dhabi compared with Dubai? Are there adequate laws in place to protect investors and their money?

Sometimes regulations start hurting the market. So most of the investors ran away from Dubai with the Rera regulations. They don't like to be tied up with [things like] escrow accounts.

But don't you think such regulations make everything much safer?

Not really. Because speculators made their money from pre-sales and some investors want their money in everything. They are short-term investors. It's an open market and you can't kill the market by putting regulations on everything. Either it's an open market or it's not.

IndieG

:curse: People like these need to be locked up....... can't imagine how many investors are going to get conned, buying into his development.....

mantronic

And glorrrrriously new to bloomberg, that published the story on 31 dec.

Seriously you have a habit of embarrasing yourself which makes me think I shouldnt hesitate to embarrass and insult you. Its fun even so just keep giving me a reason.

The link is an interesting story. I havent spun it but rather said its likely overblown. For people that are not in the financial industrty, me included, its interesting and relevant here.

Dubai's economic model is fairly unique in the ME if not the world and is just as interesting as a bust time story as it is in a boom time story.