Perhaps THE definitive article about Dubai's finances
Nov 12th 2008, 4:54 am
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Perhaps THE definitive article about Dubai's finances
It's bad............ really bad............ 
Borse Dubai May Refinance $4.2 Billion of Loans at Higher Costs
By Haris Anwar
Borse Dubai Ltd., the Gulf emirate's state-owned operator of exchanges, is in talks to refinance $4.2 billion of loans at interest rates tied to the price of credit- default swaps, raising the cost of the debt, said three bankers with knowledge of the transaction.
The new debt may pay interest of as much as 6 percentage points over the London interbank offered rate on loans for three years, said the bankers, who declined to be named because the negotiations are private. That compares with a margin of 1.1 percentage points on the existing loans, which were used to buy Sweden's OMX AB last year.
The perceived risk of Dubai companies as measured by credit- default swaps is rising on concern the global economic slowdown may force the emirate to rely on neighboring Abu Dhabi or the United Arab Emirates to repay debt, Moody's Investors Service said last month. Dubai borrowed to build the world's tallest tower, create palm tree-shaped islands and buy stakes in banks worldwide to become a financial and tourist hub.
Dubai's government-related companies owe at least $47 billion, ``more then 100 percent of Dubai's 2006 gross domestic product,'' Moody's analysts led by Philipp Lotter wrote in the Oct. 13 report.
Banks are toughening terms for all borrowers following $919.1 billion in writedowns and losses worldwide by tying loan rates to credit-default swaps rather than Libor to better reflect the risk they won't get repaid. Nestle SA, the biggest food producer, and Nokia Oyj, the largest mobile-phone maker, are among companies bowing to banks' demands to link loan rates to the derivatives contracts.
Dubailand, Skyscrapers
Essa Kazim, chairman of Borse Dubai, the parent of Dubai Financial Market PJSC and the Dubai International Financial Exchange, didn't return a call seeking comment on the refinancing. The one-year loans were arranged by HSBC Holdings Plc and five other banks. HSBC spokesman Tim Harrison in Dubai declined to comment.
Contracts covering the debt of Dubai Holding LLC, the emirate's holding company, were last quoted at 900 basis points on Oct. 31, according to CMA Datavision prices yesterday. That compares with 173 basis points in May. A basis point is 0.01 percentage point.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a swap contract protecting $10 million of debt for five years is equivalent to $1,000 a year.
Gulf Economies
Gulf economies may be more susceptible to financial turmoil than in the past because of their greater dependency on international expertise, investment and tourists to diversify away from oil.
Dubai's plans, including the Disneyland-style ``Dubailand'' that will be three times the size of Manhattan, are predicated on doubling the number of tourists annually to reach 15 million visitors by 2015. The emirate is racing against Saudi billionaire Prince Alwaleed bin Talal's investment company to build the world's first kilometer-tall tower in a bid to attract visitors.
HSBC and Lloyds TSB Group Plc, two of the largest U.K. banks operating in the U.A.E., are reducing lending in Dubai. The restrictions come after house prices in the emirate quadrupled in the last five years, stoking speculation that a fall is imminent.
Lloyds TSB, the London-based bank that entered the U.A.E. market in 1977, stopped offering mortgage loans for apartments in Dubai and reduced the amount it will lend to 50 percent of the price of a villa from 80 percent, it said yesterday. HSBC, Europe's largest bank, will require customers in the emirate to earn at least 20,000 dirhams ($5,445) to get a personal loan, spokeswoman Andrea Jaishankar said yesterday.
Federal Support
Lending across the seven states of the U.A.E., which rose as much as 50 percent annually over the last two to three years, will slow as the credit crisis keeps capital markets shut, according to Abu Dhabi Commercial Bank PJSC.
Dubai's government-owned companies, considered most at risk from an economic slump, won't be allowed to default on their debt because of Abu Dhabi's commitment to the U.A.E. federation, Abu Dhabi Commercial Bank Chief Executive Officer Eirvin Knox said yesterday.
``Dubai and Abu Dhabi are interdependent and one can't be isolated from the other,'' Knox, head of the emirate's second- largest bank by assets, said in an interview in Abu Dhabi. ``The leadership of Abu Dhabi recognize the federation and believe in it, and that involves all of the emirates.''
Borse Dubai raised $4.2 billion last year to fund its OMX takeover and borrowed 796 million pounds ($1.2 billion) to buy a stake in London Stock Exchange Group Ltd. Borse Dubai may cut the loan to $3.5 billion by repaying some of the debt with equity, said one of the bankers involved in the deal.
State-owned companies such as Borse Dubai and Dubai World will be able to refinance their loans ``given their strategic importance to the emirate both economically and in terms of public policy,'' Merrill Lynch & Co. said in an Oct. 9 report.
Borse Dubai May Refinance $4.2 Billion of Loans at Higher Costs
By Haris Anwar
Borse Dubai Ltd., the Gulf emirate's state-owned operator of exchanges, is in talks to refinance $4.2 billion of loans at interest rates tied to the price of credit- default swaps, raising the cost of the debt, said three bankers with knowledge of the transaction.
The new debt may pay interest of as much as 6 percentage points over the London interbank offered rate on loans for three years, said the bankers, who declined to be named because the negotiations are private. That compares with a margin of 1.1 percentage points on the existing loans, which were used to buy Sweden's OMX AB last year.
The perceived risk of Dubai companies as measured by credit- default swaps is rising on concern the global economic slowdown may force the emirate to rely on neighboring Abu Dhabi or the United Arab Emirates to repay debt, Moody's Investors Service said last month. Dubai borrowed to build the world's tallest tower, create palm tree-shaped islands and buy stakes in banks worldwide to become a financial and tourist hub.
Dubai's government-related companies owe at least $47 billion, ``more then 100 percent of Dubai's 2006 gross domestic product,'' Moody's analysts led by Philipp Lotter wrote in the Oct. 13 report.
Banks are toughening terms for all borrowers following $919.1 billion in writedowns and losses worldwide by tying loan rates to credit-default swaps rather than Libor to better reflect the risk they won't get repaid. Nestle SA, the biggest food producer, and Nokia Oyj, the largest mobile-phone maker, are among companies bowing to banks' demands to link loan rates to the derivatives contracts.
Dubailand, Skyscrapers
Essa Kazim, chairman of Borse Dubai, the parent of Dubai Financial Market PJSC and the Dubai International Financial Exchange, didn't return a call seeking comment on the refinancing. The one-year loans were arranged by HSBC Holdings Plc and five other banks. HSBC spokesman Tim Harrison in Dubai declined to comment.
Contracts covering the debt of Dubai Holding LLC, the emirate's holding company, were last quoted at 900 basis points on Oct. 31, according to CMA Datavision prices yesterday. That compares with 173 basis points in May. A basis point is 0.01 percentage point.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point on a swap contract protecting $10 million of debt for five years is equivalent to $1,000 a year.
Gulf Economies
Gulf economies may be more susceptible to financial turmoil than in the past because of their greater dependency on international expertise, investment and tourists to diversify away from oil.
Dubai's plans, including the Disneyland-style ``Dubailand'' that will be three times the size of Manhattan, are predicated on doubling the number of tourists annually to reach 15 million visitors by 2015. The emirate is racing against Saudi billionaire Prince Alwaleed bin Talal's investment company to build the world's first kilometer-tall tower in a bid to attract visitors.
HSBC and Lloyds TSB Group Plc, two of the largest U.K. banks operating in the U.A.E., are reducing lending in Dubai. The restrictions come after house prices in the emirate quadrupled in the last five years, stoking speculation that a fall is imminent.
Lloyds TSB, the London-based bank that entered the U.A.E. market in 1977, stopped offering mortgage loans for apartments in Dubai and reduced the amount it will lend to 50 percent of the price of a villa from 80 percent, it said yesterday. HSBC, Europe's largest bank, will require customers in the emirate to earn at least 20,000 dirhams ($5,445) to get a personal loan, spokeswoman Andrea Jaishankar said yesterday.
Federal Support
Lending across the seven states of the U.A.E., which rose as much as 50 percent annually over the last two to three years, will slow as the credit crisis keeps capital markets shut, according to Abu Dhabi Commercial Bank PJSC.
Dubai's government-owned companies, considered most at risk from an economic slump, won't be allowed to default on their debt because of Abu Dhabi's commitment to the U.A.E. federation, Abu Dhabi Commercial Bank Chief Executive Officer Eirvin Knox said yesterday.
``Dubai and Abu Dhabi are interdependent and one can't be isolated from the other,'' Knox, head of the emirate's second- largest bank by assets, said in an interview in Abu Dhabi. ``The leadership of Abu Dhabi recognize the federation and believe in it, and that involves all of the emirates.''
Borse Dubai raised $4.2 billion last year to fund its OMX takeover and borrowed 796 million pounds ($1.2 billion) to buy a stake in London Stock Exchange Group Ltd. Borse Dubai may cut the loan to $3.5 billion by repaying some of the debt with equity, said one of the bankers involved in the deal.
State-owned companies such as Borse Dubai and Dubai World will be able to refinance their loans ``given their strategic importance to the emirate both economically and in terms of public policy,'' Merrill Lynch & Co. said in an Oct. 9 report.
Last edited by The Dean; Nov 12th 2008 at 4:54 am. Reason: spacing
