From Times Online
November 28, 2009
By Rhys Blakely in Dubai
Abu Dhabi is poised to come to the aid of Dubai’s debt stricken-businesses, but only on a “case by case” basis, senior bankers an officials said today.
The Dubai Government sent global markets into a tailspin this week after it asked creditors of Dubai World, the state-owned conglomerate behind the city state’s building boom, for a six-month standstill on $80 billion of debt repayments.
The move kindled fears that the world economy is yet to rid itself of toxic debt, and may even succumb to a fresh downturn in a “double dip” recession.
Oil rich Abu Dhabi, which has the world’s largest sovereign wealth funds, thought to be worth as much as $700 billion, could easily bail out Dubai, but is thought to be unwilling to pour more money into its neighbour’s beleaguered property sector, which has buckled under the weight of a series of half-finished grand projects.
“There is no such thing as a free lunch,” Yasser el-Mallawany, the chief executive of EFG-Hermes, Saudi Arabia’s largest investment bank, told The Times. “I think we will now see a welcome restructuring [of Dubai’s assets], done on a case-by-case basis.”
That view chimed with comments made by Abu Dhabi officials. Some analysts believe that a tailored rescue package is also likely to offer sweeter terms to foreign investors than to those based in the UEA.
It is widely thought that Abu Dhabi does not want to pour more of its petrodollars into companies whose business models have badly broken down in the wake of the global credit crisis, such as Nakheel, the property developer behind the partially-completed man-made Palm Islands in the Gulf, which is owned by Dubai World.
But Dubai’s portfolio of assets also concerns solid going concerns, such as DP World, the fourth-largest ports operator across the globe. DP World has said it is ringfenced from the debt crisis, but analysts say that the relations between Dubai Inc’s companies are hazy and that contagion could yet spread within the group.
However, with no official statement coming from Dubai or Abu Dhabi, investors were again fretting on Saturday.
With details emerging of the meetings between the two city states, there was speculation that Abu Dhabi was pushing Dubai to accept onerous terms in return for a bail out – possibly calling for it to give up control of a prized asset such as Emirates, the Dubai airline.
If Abu Dhabi were to overplay its hand, Dubai could still be forced to embark on a global firesale, analysts said. The first parcel of Dubai debt to mature is $4 billion in Islamic bonds issued by Nakheel, which was due to be repaid on December 14. It is understood to be in the hands of local banks, whose balance sheets have been already badly ravaged by a property market slump.
Bankers believe that fact will pile pressure on the Dubai and Abu Dhabi Governments to reach a resolution before the banks open after a four-day holiday, on Monday morning.
“The Governments can never allow a run on the banks,” Mr_el-Mallawany said.
Another local banker said: “It’s now all about perceptions. If a bank goes bust, the region will be a no-go area for years.”
Most of the December 14 maturity debt came into the hands of local banks after they increased positions under Government pressure when foreign banks, hedge funds and other investors retreated in the wake of the credit crisis, local market players said.
According toanalysts, they were ill-equipped to step into the breach. The health of Dubai’s banking system has been a matter of concern for some time, with some foreign analysts voicing concerns that balance sheets did not reflect the true scale of losses suffered because of property crash.
Some local bankers yesterday welcomed the prospect of a purge.
S&P has warned of possible credit downgrades to Emirates Bank International, National Bank of Dubai, Mashreqbank and Dubai Islamic Bank in the wake of the Dubai World standstill.
Mohamed Damak of S&P said: “The deteriorated economic environment,including the fall of real estate prices, has already started to weigh on the financial profile of these banks.”
Abu Dhabi Commercial Bank is also thought to be heavily exposed to Dubai. Even if Dubai pays of the December maturity, there are serious doubts over how it will find the estimated $20 billion it needs to repay up to 2011.
Analysts are especially concerned that the Emirate has now destroyed its reputation among lenders, who had been led to believe the Government would honour “Dubai Inc’s” liabilities
Stuart Culverhouse, Chief Economist of Exotix, a boutique bank that specialises in the Middle East, said: “They have opened Pandora’s box and, no matter what happens next, have created a monster they may not be able to control.”
Credit Suisse, the investment bank, believes that European banks are exposed to half of Dubai’s $80 billion debt pile, with Barclays and Royal Bank of Scotland (RBS), which is 70 per cent owned by the taxpayer, believed to have invested heavily in the region.
In a recent note, JP Morgan analysts pegged Standard Chartered’s exposure to Dubai debt at $7.8 billion, HSBC’s at $17 billion, Barclay’s at $3.6 billion, RBS at $2.2 billon, Citigroup at $1.9 billion, and BNP Paribas at $1.8 billion.
However, JP Morgan said that worries over global banks’ exposure to Dubai had been overdone, since only a small amount of the total loans were set to mature in the near term.
The Daily Telegraph reported this morning that Rothschilds, the investment bank, had been appointed to help restructure the assets of Dubai World. Paul Reynolds, head of Rothschild’s Middle East advisory operations was asked to work for the Dubai government with Aidan Birkett of Deloitte, the accountants, who was appointed on Wednesday.
Now Abu Dhabi can own a large chunk of Dubai real estate at 50 pct of the asking prices. The obscene Palm Jumeirah, Palm World islands will take another 20 years for the buildings to sprout.
The repercussions will be felt here, especially for the Iskandar real estate corridor which has been premised on Arab money. Now the flow will slow to a trickle, and Najis will have a hard time explaining why Iskandar isn’t taking off despite the billions in concessions given to the Arabs.
Khir Toyo tried to emulate the real estate successes of Dubai by having the state government build its version of the Palm – at the Sepang Gold Coast plus new resorts along the Morib Gold Coast. [Everything that UMNO touches apparently turns to Gold, hence the fixation with Gold Coasts.]
Predictably these have either been abandoned or completed with no takers and have become headaches for the new PR government.
Will a middle-East country throw a lifeline to 1M’sia in a similar situation next time
Well why look at Dubai ? Just look at Kota Kinabalu city,multi-storey shopping/commercial complexes are currently being built, 4storey commercial and industrial shop lots are also mushrooming everywhere within the city.I wonder where the needs for so many ot these properties.Presently I understand that areas like Segama,Sinsuran,Kg.Air,OneBorneo have pretty lots of empty spaces and most owners I talk to said they find it very difficult to rent it out.Most have remained empty for months and years.Some have given it up to the banks and banks find it pretty hard to sell them.This’s the scenario but Sabahan political leaders still continue to build.Wow,who’s benefiting all these,I wonder.
The problems with Dubai could be considered as over-projecting. But, they can still be backed up by the oil-rich Government and apparently a number of reputable foreign banks are involved. The down-turn of the International economic is another cause.
The problems with Malaysia is the property development have been there just for the bubble up of the “Book Value” of a great number of listed companies. The land value could have been inflated, the price could also be inflated (cosmetic by condo instead apartment)? Book value being inflated with mis-appropriated common properties. Projects approved not because the market is there. The worst is the approval could easily be violated without enforcement ending up with billion worth of abandoned projects. Most projects are backed up by mortgage by local bank on basis of inflated land value. The Government had been the abettor of lousy Developers and the oil money is not in the hand of the Government. And, the Government is having a lot of many other loopholes to cover, or, have to feed a lot of cans of worms!!
PM to US to push 1Billion bonds could be a straw to tear the POROUS economic of Malaysia. Who will come to help? It does not matter anything with any part of the World!!
POOR Malaysians in a sinking boat with engine taken away by BN, oil sucked by Petronas, holes drilled by inflated Government Projects/scandals/corruptions, overloaded by “hopeless Police, Public Servants”, rowed by tiresome Rakyats with eyes blind-folded, dragged by the Concessionaires……. !!
Corruptions seems to be in Muslim countries more than anywhere else.
I wonder why.
Dubai will be what it was in the 1960s, a frowsy fishing port in a scorched and very backward Third World country, with a moral code for the indigenous population drawn from AD 1335. And the rest of us will look on and wonder:
what powerful but unrecorded race
Once dwelt in this annihilated place?
http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article6936316.ece
Kota Kinabalu unoccupied buildings, no problemo
Can convert them to money making swiftlet houses to harvest yan wo
Otherwise, pendatang (legal or tak legal) fr neighboring Asean countries will move in 2 occupy them
They will certainly appreciate de warm n generous hospitality b4 getting blue IC
‘Allo, LKS, u ah got time 2 write abt Dubai World
U ah also wrote much abt bad things of Umno Baru n BN
But Umno B n BN don’t care what u wrote or listed cos they hv no fear factor n they know they control every system
How abt write something good n positive abt what DAP or PR has done since 308
LIST OUT 10 (maybe too much, 5 lah will do) feel good things done by DAP since 308
Can or not ah, unless aiyooh u got no feel good things 2 tell us
De next GE will be here soon
Lots of ppl, young n old, NOT registered as voters yet
Even if they ah side DAP/PR, no use 1, cannot vote 1
We r a nation of thieves n fraudsters
Today’s news:
Up to 60% of Sarawak government allocations — running into billions of ringgit — meant for vital infrastructure projects between 2002 and 2008 have been misappropriated
Fraudsters forged court documents to secure the release of the bail bonds
Ingenious ppl at work taking advantage of the incompetent 1M’sia system
And our Pembohong Maha said “Malaysia stands ready to play its role to make it a better world”
http://themalaysianinsider.com/index.php/malaysia/44911-negri-mbs-rm10m-transfer-still-under-probe
Every time someone tells me that lax law enforcement is a good thing, I remind them that their waived ‘transgressions’ have not been to court and been rejected – they’re going into someone’s ‘manipulation bank’. Is this story not a foreseeable sequel to Bagan Pinang?
Luyang,Kota Kinabalu,one of largest residential areas,just 1-2 km from city centre is facing almost daily power cut by SESB. Wonder what’s worst happening when six to 12 months later,some of these mega projects go into operation. Can SESB please enlighten us of its plan to avoid further deterioration of power supply.Most power disruption is un-notified ,busisness people ,residents suffer and also one can imagine the traffic chaos it created , considering Luyang,a place where traffic movement is one of the heaviest within the city. One thing SESB is pretty efficienct is disconecting consummer’s meter when bill is overdue just a week.
List of scandals that caused the country to lose as much as U$100 billion since the early 1980s to corruption.
http://www.asiasentinel.com/index.php?option=com_content&task=view&id=2165&Itemid=199
http://www.asiasentinel.com/index.php?option=com_content&task=view&id=2169&Itemid=229
…the government, through the reigns of Prime Ministers Mahathir Mohamad, Abdullah Ahmad Badawi and the current prime minister, Najib Razak, retroactively and illegally authorized payments and bonds that have driven the cost of the project from an original RM1.96 billion (US$577 million) in 1999 to a potential RM12.45 billion…
Ever wonder why services provided by banks have been exorbitant throughout the financial systems worldwide?
The problem with banks is that they are the vehicles whereby the ruling elites and stock market manipulators employed to gorge the common citizens of the world with charged services which at one time were gratis. Banks of yesteryears were customer-orientated entities and prudent in their businesses. But for the last 10–15 years or so, banks have transformed themselves into rapacious monsters with the connivance of the regulatory authorities. They engaged in risky lending activities such as credit cards and all types of toxic instruments. Early birds, such as Goldman Sachs have few competitors and they made exorbitant and obscene profits. This practically draw in more players into the game so much so the financial landscape was completely transformed into a big casino. With practically all banking outfits branching into the crocodile-infested type of environment, it a matter of time when standards and ethics were sacrificed on the altar of greed chasing after fat and easy profits.
Now it has become a dog-eat-dog type of business as each competitor tried to outdo one another through sleazy business practices. With too many players, fat profits became scarce and risks and fraud snowballed. To protect themselves from self-induced risks and fraud, banks have to make their customers pay for their indiscretions. So now it is the privatization of profits and socialization of losses type of scenario that the financial system has morphed into: charge the customers for everything but keep the profits for themselves.
My, my just a few months ago Abu Dhabi was the poster boy of the Middle East and the magnet for world-beating property developments. Every conceivable property development with the “wow” factor happened in Abu Dhabi.
Now?, with hubris sky-high it came crashing down like a meteorite from outer space.
Will Bolehland learn from this lesson? No, robber barons don’t. The PKFZ affairs will be repeated in the Iskandar Corridor and many others.
Did Mohamad Hasan attend d BTN course?
He must b just 1 of many BN politicians who transfer RM million 2 banks overseas
He has no fear 4 MACC n AG
Siasat lah, OK 1, act act play play saja, akhirnya no case, no dead body
M’sia actually has lots of billionaires n millionaires who don’t show off their wealth
Many r diam diam Malay billionaires n millionaires
[MH is MB of 1 BN state; how many BN states do we hv? Read d Sarawak news 2day]
Some of them r wealthy enuf 2 rescue Dubai World
Isa is itching all over body 2 take over d juicy Makan Besar post
call me an old bird or whatever, I always prefer brick and mortar economy than the so call “paper wealth” economy model
financial derivatives, property speculation, margin calls etc, though can stimulate economies, actually is built entirely on trust, greed, sentiment, manipulation and hope
I also think we cannot totally do away with the above but we can’t rely too much on this. Malaysia is lucky, it has natural resources that we can fall back on but the BN administration over the decades have not put the resource into good use.
Its always the banks isnt it…..the system is rtten to the core…..anyone with a huge pile of other people’s money in their vault will always mess up….without consequences…..which is why the problems recur…
The problem with living in a dream is that you will have to wake up in the next morning to face the reality! To those few lucky ones, they get to wake up a little late and dream a bit longer. Unfortunately, the majority only have a short dream and most of the time is nightmares.
Same thing, Malaysia is also living in a dream. Umno think they can create a successful Malay class without hard work and study and that is why the country is failing to develop into a high wage country like Singapore.
There is no shortcut to success and everyone has to go through the hard-learning process and literary work your ass off from the bottom all the way up. Singapore has done that, so are HongKong, Taiwan, Korea and now China. Let see if umno will ever wake up from its dream!
‘http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article6936966.ece’
‘…Such privacy, lack of accountability and strategic largesse are all characteristics of the Bedouin tribes; an unchanging and unsettling foundation to business here that obscures the view of those seeking clarity and transparency. In short, this is an Arab thing.’
Someone has accused Kit Siang of writing on the Dubai World while Malaysia is facing lots of problems. But they may not be entirely unrelated. I was wondering whether ‘the Arab thing’ had been regarded as ‘the Islamic thing’, and had thus exerted a considerable influence on the management of our economy. That may explain why the practice of open tender is shunned.
The reasons for lks to write on dubai are numerous, boh liao. Lee Wang Yen mentioned one. There is another reason. Lks must be in tune with international affairs. Dap must be knowlegeable in that dept as well for the party to be accepted as capable of leading the country. This is not the first time lks write on matters of international relevance.
Bank Negara poised to throw a lifeline to banks
On Nov 25, a seemingly harmless New Central Bank of Malaysia has come into force.
The reason for this new act is “to strengthen Malaysia’s resilience to financial crises in a globalised environment.” Furthermore, the Central Bank can intervene if there is a risk to financial stability.
Will we have a case where banks take excessive risks? Is Bank Negara telling these banks that they have written a put option and they will insure the banks in the case of excessive losses by injecting fresh capital?
As they say “Here we go again!”