Emirati Women Hold AED 12.4 Billion (US$3.4 Billion) in Investments

Raja AlGurg (Al Qurq), President of the Council of Dubai Businesswomen, said at a press conference held in Dubai to announce the seventh competition for Emirates Prize for Businesswomen that there were 11,000  businesswomen in the UAE.  4,300 in Dubai, 3,200 in Abu Dhabi.  With AED12.4 billion (US$3.4 billion) in investments in a diverse range of assets: hotels, real estate, buildings, shares, etc.

Earlier post on women's wealth in the GCC.

Abu Dhabi/Dubai: Who's in Control?

Following Monday's surprise announcement, there's been discussion about the terms of the deal between Abu Dhabi and Dubai. In short which Emirate has the upper hand? 

What follows is a re-worked comment to an article at The Emirates Economist blog. There is a discussion there along with some other useful posts, which I suggest those interested in this topic take a look at.

Because details of the funding and any side agreements have not been revealed, we have no way of knowing.

Despite these limitations, we can engage in some hopefully informed speculation.

My own view is that Abu Dhabi has the most leverage.

I look forward to hearing your views, particularly those with different positions.  This is after all a "suq" and one should never take the first price (or opinion) as the last word without a big of haggling.

In large part though not exclusively, I've relied heavily on the 14 Dec Government of Dubai announcement. There are some risks with basing an argument on this document as to do assumes that it was crafted with each word and phrase carefully pondered before its selection That may not have occurred for time and what might be described as "cultural" reasons.

First, the funding itself.

I'm reading two statements from the press release to mean that funding is being provided in stages and with conditionality. First, "The Government of Abu Dhabi has agreed to fund." Not has funded. Of course, on the day of the announcement it's highly unlikely that funds would have been disbursed. The deal was probably struck hours before the release was issued. But there is another indication. In a following paragraph, it states that use of the remaining US$5.9 billion (after the apparent preference to Nakheel sukuk holders) is conditioned upon Dubai World securing creditor agreement to a standstill.

While there's no way of knowing for certain at this point, it sounds like that cash is not yet in hand. I'm guessing (hopefully an informed guess but note that word) that the funding is going to be phased in as needed and as milestones are met. Why? Because this is the tactic that Abu Dhabi took with the recent US$5 billion sale of the second tranche of the US$20 billion bond issue. As you'll recall while NBAD and AlHillal subscribed for US$5 billion, they only paid in US$1 billion immediately with another $1 billion to come within a week or so and then the remainder over the year. It would seem likely that Abu Dhabi would continue the same tactic rather than giving a carte blanche to Dubai.

If this analysis is correct, Abu Dhabi has tremendous leverage over Dubai. Particularly, if negotiations with creditors are difficult. And even more so because I believe that there are more economic shoes to drop in the Emirate (as described below).

There is I admit a second interpretation here – Dubai has the funds or will have them all shortly. And that this statement is designed to put pressure on DW's creditors to conclude a deal.

Second, the form of the financing.

It would have been quite easy for Abu Dhabi to have subscribed to the remaining tranche of the existing US$20 billion bond offering. And to use surrogates – the Central Bank or commercial banks as was recently done. And much quicker since legal documents for these existing bonds were already in place. As well, there was ample unfunded capacity on the second US$10 billion tranche. As noted above, at least US$8 bllion.  So Abu Dhabi's incremental purchase in the existing bond issue could have easily provided funds for the Nakheel bond.

So why wasn't this route taken?

One answer is of course to make the commitment of Abu Dhabi clear. But, by and large the market saw the hand of Abu Dhabi behind the Central Bank and the two commercial banks' purchases. What is the benefit? Discretion. As public entities, both the Central Bank and commercial banks would have to disclose material terms of the bonds – interest rate, repayment and very importantly if there were any material conditions – pledge of collateral, options to acquire assets, etc. – associated with the bonds. They would also be obligated to report any material changes to the bonds' terms or any delays in repayment. In a state to state deal, particularly one between two absolute rulers, disclosure can be what the two parties want. There are no Central Bank or listing regulations. Nor IFRS to deal with.

A direct state to state deal also puts Abu Dhabi's hand a bit closer to Dubai's throat, though it also puts Dubai's hand on Abu Dhabi's. A default to a commercial entity would have to be reported. There is more opportunity for discretion in a government to government deal.

Third, the relative positions of the two parties.

In the context of Dubai's debt, US$10 billion is not solution. It's temporary life support. It's likely Dubai will need more assistance in dealing with its debt. There are the indications that the Emirate itself has a cashflow problem: trade creditors to the government are reportedly among those with past dues. As well, even with bankers and investors' well known affliction of financial ADD, Dubai is likely to find its access to financing constrained for a while. The winding down of the real estate machine, which has driven a good portion of economic "performance", is going to have more than one bout of knock-on effects on the economy.

If so, there will be plenty of future opportunities for Abu Dhabi to apply pressure.

Dubai's main leverage is a Samson-like bringing down of the temple. A weapon perhaps more useful as a threat than for actual use as Dubai is likely to be ground zero in any such application.

Fourth, Abu Dhabi's primary goals may be more political than economic. The more dependent Dubai is for financial support the more it will have to accommodate itself to enhanced pre-eminence for Abu Dhabi and to the latter's policies and wishes.

In this context allowing Dubai to retain its flagship assets and its "face" may be small prices to pay.

Tie Your Camel First, Then Trust in God Part VI - The Implicit Guarantee Defense - Turnaround is Fair Play

According to the Financial Times, in deciding to make its investment in Citigroup the Emirate of Abu Dhabi "assumed the US government would make any investor in Citi whole".  They also apparently believed that "Citi is America" as the sophisticated head of another unnamed sovereign fund in the region so carefully summed up the matter.

The article also notes that ADIA plunked down US$7.5 billion after "only three days of due dilgence".

Seems it's not only sophisticated and sober investors and bankers from the West who believe in the implicit guarantee and apparently as well the Great Magic Pumpkin, though it may be lonely in the pumpkin patch at times.

Some hopefully helpful hints:

1. "Too big to fail" does not mean too big to have one's share price go down, way down.  
2. There appears to be a real unmet need in the region, particularly the UAE,  for courses in convertible bond/security basics and structuring. And thus a significant  business opportunity to be seized.
   

Earlier posts here and here.

Analysis of Dubai Government 14 December Statement on Restructuring Dubai World

Below the dotted line is the text of the announcement made by the Dubai Government on 14 December 2009 regarding the US$10 billion  support from the Emirate of Abu Dhabi and the restructuring of Dubai  World. My comments are in blue italics. One caveat:  My analysis is based upon the press release having been  crafted with the import of each word and sentence carefully considered.   That may not have been the case for a variety of reasons, including time  pressure.  That theory is somewhat supported by the fact that there are  two almost identical press releases issued by Dubai within less than  one hour. ------------------------------------------------------------------------------------------------------------------------------

WAM Dubai, Dec14th, 2009 (WAM) --- Sheikh Ahmad Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee (SFC) reassured investors, financial and trade creditors, employees, and citizens all out support of the government and has said that Dubai is, and will continue to be, a strong and vibrant global financial center. "The Government of Dubai remains committed to its high standards and its obligations. We are confident in our economic model, and we are confident in the long-term health and outlook for our economy", he said in a statement on Monday. "The actions taken today are consistent with our market development, and we believe they are the actions that will best serve the interests of all stakeholders," he added.  AA:    With the apparent agreement of the Emirate of Dubai, Nakheel has paid the holders of its US$3.52 billion sukuk US$4.1 billion.   That is, the holders of the sukuk are not being asked to participate in the restructuring – either in terms of a retiming of their repayments, the interest rate thereon or the amount of any adjustment ("haircut") of principal. Assuming that the point of the rescheduling will be to ask other creditors to accept some or all of these steps, exactly how  are the interests of all stateholders being served? If this payment is a preference of one group of creditors over another, precisely what "high standards" have been applied?     The Government of Dubai, acting through the Supreme Fiscal Committee ("SFC"), today announced a set of actions in relation to Dubai World. Full text of Sheikh Ahmad Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee statement: Like other global financial centers, Dubai has faced recent market challenges driven by global economic slowdown and severe real estate market correction.  Recently, Dubai World announced that it might not be able to commercially support its obligations. Since that time, the Government of Dubai has worked closely with the Abu Dhabi Government and the UAE Central Bank addressing and assessing the impact of Dubai World on the UAE economy, banking system and investor confidence.   AA: This sounds the theme of separation between Dubai World and the Emirate. Something that I have noted that careful lenders and investors should have been aware of from day one. The following provides comprehensive set of actions: First, the Government of Abu Dhabi and the UAE Central Bank have agreed to provide important support. Specifically, the Government of Abu Dhabi has agreed to fund $10 billion to the Dubai Financial Support Fund that will be used to satisfy a series of upcoming obligations on Dubai World.  AA: Does this mean that other creditors (in addition to Nakheel sukuk-holders) will be paid their obligations.?   Simply because those obligations come due before others?  Meaning that those creditors whose obligations are not so temporally favored will have to reschedule their obligations?     Perhaps, more importantly, note the words "has agreed to fund".  This implies that the full US$10 billion has not yet been disbursed. As a first action for the new fund, the Government of Dubai has authorized $4.1 billion to be used to pay the sukuk obligations that are due today. The remaining funds would also provide for interest expenses and company working capital through April 30, 2010 - conditioned on the company being successful in negotiating a standstill as previously announced.  AA: This does not appear to contemplate any repayments of principal.  Yet the paragraph prior to this one specifically mentions "upcoming obligations". Are these only interest? Or do they just comprise trade creditor obligations?   Crtically, how is the support conditioned?   Will Abu Dhabi only disburse the funds if a standstill is negotiated? A bit of leverage to use against the creditors.  Though  this admission is a two edged sword.  If Dubai World cannot pay interest on its obligations absent this cash infusion, how will it pay the obligations themselves?  This deferred disbursement mechanism also gives Abu Dhabi significant leverage over Dubai.    In addition, the Government of Dubai is particularly focused on addressing the concerns of Dubai World trade creditors within the Emirate of Dubai. To help address these concerns, today the Government of Dubai is announcing that the remainder of the funds provided will be used for the satisfaction of obligations to existing trade creditors and contractors. Discussions with affected contractors will begin in short order.  AA: The concern is stated as being particularly for trade creditors within the Emirate of Dubai.  Does this mean that those outside will not receive the same treatment? It is also unclear how much is the amount (the "remainder of the remainder") to be devoted  to this group of creditors. Within DW's trade creditor group within the Emirate of Dubai, will only past due amounts be paid?  Here I have the same question about "preferences" though on a temporal basis rather than geographic basis. Next, the central bank is also prepared to provide support to local UAE banks.  AA: Two reasons this support might be necessary.  The first because other banks refuse to lend  some UAE banks over concern about  their creditworthiness related to exposure to Dubai World.  Here the CB UAE would provide liquidity support.   The second because the local banks were potentially subject to serious losses on their DW exposure.  Here the CB UAE would provide various forms of support including perhaps capital infusions. On 29 November the Central Bank announced additional liquidity support for both local and foreign banks in the UAE.   Is thie press release merely restating this support?  Or is this a new statement related to the second rationale for support? Finally, today the Government of Dubai will announce a comprehensive reorganization law, a framework that is based upon internationally accepted standards for transparency and creditor protection. This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations.   AA: A not too subtle hint to creditors: do a deal or face the consequences.  Realistically, the law and court will probably have to be resorted to in order to secure creditor approval of the restructuring package. The "new" law provides that if more than 75% of creditors vote for a reorganization plan it is accepted and binding on all creditors, which provides a much needed cramdown mechanism. Explained in more detail in this earlier post.   Today's actions, taken together, demonstrate our strong commitment as a global financial leader to transparency, good governance, and market principles. There will certainly be challenges periodically, just as there are challenges in other major financial centers around the globe. We believe today's actions will best serve the interests of all stakeholders.  We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices. Dubai is, and will continue to be, a strong and vibrant global financial center. Our best days are yet to come.  The Government of Dubai remains committed to its high standards and its obligations. We are confident in our economic model, and we are confident in the long-term health and outlook for our economy. The actions taken today are consistent with our market development, and we believe they are the actions that will best serve the interests of all stakeholders." WAM/AMIR

Kuwait Offers UAE Financial Assistance for Dubai

As per Bloomberg, Shaykh Muhammad AlSalem Al Sabah, Foreign Minister of Kuwait, revealed on the sidelines of the GCC conference in Kuwait that he had called his counterpart in the UAE to offer both moral and financial support to the UAE with financial problems.

A nice gesture.  UAE advised that it didn't need financial assistance.

ADIA Files Arbitration Claim to Terminate Citigroup Stock Purchase

Bloomberg reports that ADIA has filed an abitration to abrogate its obligation to purchase Citigroup stock at a price currently more than 9 times market.

Here's a more detailed report from Reuters.

As you'll recall, ADIA invested US$7.5 billion in Citicorp mandatory convertible securities in November 2007.  The strike price is a rather unattractive US$31.83 per share with the first purchases scheduled to begin in March 2010.      Earlier post here.   Citigroup is opening this morning around $3.47 share.

Another post on convertible securities and the importance of deal terms.

Dubai: "I Have Always Depended on the Kindness of Neightbors"

Apologies to Tennessee Williams for changing his words.  But casting Dubai as Blanche du Bois seems highly appropriate on a number of levels. 

Today, there is great joy in the financial world:  Abu Dhabi has bailed out Dubai.  Though at this point, we don't know what the conditions are.  Loan or grant?  Any quid pro quo?  Or perhaps quid pro the "quids"?

Like the drunk who has fallen in the river and been pulled out by a kindly stranger, it  is likely that bankers and investors have learned little.  They appear to be headed back to the Risk Saloon to start another bender.  This time it will be different though, they will lay off the "Jack Dubai".  Instead of Old Number 7, perhaps a spot of Black Label. 

Hedge funds and vulture investors are celebrating a quick buck made.  Perhaps the only ones with a claim to any glory.

The borrower is relieved.  It has been spared the humiliation of a formal default.  And Lord knows it's suffered plenty humiliation to date.  The beautiful dream, a modern day Belle Reve,  may be lost.  And despite their name the Elysian Fields are a bit more downscale.  Here's the official statement.

And one revised 45 or so minutes later to include a bit about how Dubai will remain an important global  financial center.  "I don't want realism. I want magic! Yes, yes, magic. I try to give that to people. I do misrepresent things. I don't tell truths. I tell what ought to be truth"  or so goes the script.

One wonders (well at least AA does) how this was overlooked in the initial release.  Initial excitement at the good news?  Lack of attention to detail?  A slip-up at WAM?  Suggestion from someone  higher up to get back on message? 

Middle East (UAE and GCC) Finance and Investment News

Another blog added to the links of Interesting Blogs and Other Links.

Link here.

Dubai Five-Year Credit Default Spreads

Not surprisingly, after the announcement by Dubai World that it was seeking a six month payment standstill for certain of its subsidiaries, the market began re-rating those companies' risk. As well, the market also began taking a closer look at the risk of the Emirate itself.  And country risk in general.

Using four data points – two days just before the announcement and this Tuesday and Wednesday – we can see the impact. Data is from Markaz Kuwait. Links to their GCC Fixed Income Reports are in the table immediately below.  Click on the dates to access the reports.  Note the CDS data in a report is from the close of the previous day.

23 Nov	24 Nov	8 Dec	9 Dec
306.7	323.4	559.4	598.71

The increase is 292 basis points or 95%. To put this into context, a 10 basis point increase in the credit spread on US$1 billion results in an extra US$1 million in debt service.   Note: a change in credit default spreads does not change the credit spread on existing debt. It might, however, influence the price on new debt.

We can also compare the impact on several other states in the region and use the changes in their CDS spreads as a context in which to view the market's reaction to Dubai.

Country	23 Nov	24 Nov	8 Dec	9 Dec
Abu Dhabi	99.7	99.99	145.56	177.32
Dubai	306.7	323.4	559.4	598.71
Bahrain	172.02	171.94	209.78	212.22
Qatar	93.83	93.57	111.68	119.38
Saudi	74.9	74.9	95.7	98.51
Egypt	217.7	217.7	240.0	241.6
Lebanon	259.98	259.99	269.6	269.6
Turkey	192.24	195.3	192.08	192.08

The major impact as expected is on Dubai.

However, Abu Dhabi was affected as well with a 77% increase in its CDS spread. This makes little if any sense. The Emirate has substantial financial wealth and an even more substantial liquid "bank account" (oil) in the ground.

Bahrain's CDS went up 40.2 basis points, roughly 23.4%. Qatar's up 25.6 bp or 23.6%. Saudi's up 23.6 bp or 31.5%.

Lebanon's moved up 9.6 bp - a negligible 3.7%.  Considering the credit metrics of Lebanon, one might wonder as Qifa Nabki did in a recent post about Lebanon's capacity to service its debt.

And for added context here are some ex-region comparatives.

Country	23 Nov	24 Nov	8 Dec	9 Dec
PR China	78.62	78.62	98.51	75.1
France	27.0	27.11	26.83	28.05
Germany	22.42	23.32	22.94	24.46
Japan	70.9	71.58	91.78	66.5
UK	65.71	66.8	77.04	83.74
USA	31.83	31.83	33.49	34.96

From this chart, it's clear that 9 December was either (a) a day of higher than usual nervousness or (b) a day on which one or two counterparties were shedding risk in their portfolios. Presumably, now that the market has rediscovered (but if history is a guide, only for a while) country risk, some financial institutions may be moving to trim down outsize exposures through buying a bit of insurance.  In this process, the UK suffered the most damage with an 18 bp increase or 27.4%.

Some caveats:

1. The CDS market is thin.  Several same direction trades (all buys or all sells) can move the market price.
2. As with other financial instruments, sometimes sophisticated market participants engage in herd behavior and are known to be prone to irrational exuberance or stark terror.  
3. As mentioned above, a change in the CDS spread does not automatically change the credit spread on an existing loan or bond.  It may however influence the price at which new debt is raised.
   

The take away is that these price changes are not necessarily an accurate reflection of credit risk as I hope the changes in spreads on Abu Dhabi and Lebanon note show. 

In fact Bill Gross at PIMCO (Pacific Investment Management Company) is buying up Abu Dhabi and Qatar bonds believing they are mispriced and that he can get a bargain now.  Bill is such a large player that his deals can move the market.  

UAE Market Volatility Continues

Contrary to reports this week that everything was just fine in local stock markets, there's been a reversal today.

Frankly, there's nothing surprising about this. 

Until there is more clarity on the restructuring and some progress has been made with creditors, market volatility should remain high.  Especially since this market and other GCC markets are largely dominated by retail trade.  

National Industries Sues Carlyle Group

AA saw the news item in the Financial Times this morning.  Hard to miss it's on the front page.

What a shock!

There was no editorial (lead or otherwise) calling for Carlyle Group to step up and guarantee Carlyle Capital Corporation so that NIG could get back its US$50 million investment. 

Nor even more surprisingly was there a call on Abu Dhabi to step up and accept responsibility.

What's capitalism coming to?

Of course, AA will be keeping his eye on tomorrow's FT.  The editorial may be there.  

UAE Markets Lose AED33 Billion (US$9 Billion)

ADX down 8.2% and DFM 7.3%.  The ADX drop was the largest in is history.  The DFM hasn't had a drop like this for over a year.

On the ADX (Abu Dhabi) there was a broad decline with many stocks down 9% for the day.  While one would expect declines in the banking, real estate and construction sectors, there were also large declines in companies such as Aabar (AD Government owned energy company), Abu Dhabi National Hotels, Agithia Group (Food Company).  Clearly a general market sell-off as investors  rush to liquidity (cash).   Looking at individual stocks, the forward order books are one-sided - all "asks" (sell offers) and no "bids" (buy offers).  That suggests market pressure for tomorrow.

On the DFM (Dubai), essentially all of the market's drop was in the first 45 minutes of trading - from 1970.2 to 1942.6 with a further slight drop to 1940.36 in the last 45 minutes.  I couldn't find the forward order book summary.  But again a quick glance indicates a broad sell off as in Abu Dhabi.  I'd expect more selling pressure tomorrow at the DFM as well.

On Nasdaq Dubai, Dubai Ports lost 14.88% (and earned the distinction of being the stock with the largest drop and the largest trading volume).  You'll recall that the Government announced that DP would not be part of the debt standstill.

Trading patterns suggest an absence of buyers during today's session.  And as indicated above (at least based on ADX data), there don't appear to be many buyers waiting to jump in tomorrow morning. 

National Bank of Abu Dhabi US$345 mm to Dubai World Group

NBAD issued a press release detailing its exposure:

1. US$120 million in the Nakheel Bond
2. US$100 million general corporate loan to Nakheel
3. US$125 million to Limitless.

Central Bank of UAE to Guarantee Dubai World?

Rumors in market that an announcement will be made before the stock markets open in the UAE today.

Just a few hours from now.

Nothing on WAM so far.

Could last Thursday's announcement been a shrewd move by Dubai in the face of Abu Dhabi reluctance to step up for US$10 billion for the second tranche of the bond issue?

UPDATE:  No guarantee from the CB UAE or for that matter from the Emirate of Dubai.

Update on Dubai's Options from The National

Here's an update from The National.

I'm puzzled by one thing - just what did analysts think HSBC was going to say at this juncture?

Dubai: The Typical Banker and Investor Response

No sooner had Dubai announced its debt standstill request than the typical banker/investor reaction set in place.

First, was the usual fear- "nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance".   Proof yet again, if any were required, of the power of the insights of behavioral finance.

Second, came the typical recriminations.  Only a short time ago, Sheikh Mohammed was a man of vision.  A reformer who would lead a modern day renaissance of the Arab world.   A leader who would build a new Singapore in the Gulf.  Today suddenly he's changed - or at least we are asked to believe he's changed - to a charlatan or an incompetent.  What a difference a day or two can make!  And a debt standstill request.

As an example, (though to be clear I am not accusing the FT or Ms. Khalaf of previously mindlessly cheerleading for Dubai), today's FT's lead editorial and a column by Rula Khalaf detail the manifest profligacy and unwise business and financing strategy of Dubai.  And do so in less than gentle language.  A small detail that the efficient market apparently overlooked - not the language, the analysis.  Sober bankers and investors tricked yet again despite the most careful due diligence and solid risk management skills.

Third, there are the (sadly) usual calls for a bailout.

The FT thunders that:  

"For its part, Abu Dhabi should give whatever help is needed to bring this episode of incompetence to a close. Abu Dhabi allowed it to be believed that it was backstopping Dubai, so it should make good its promises. This will require a public guarantee of Dubai’s debts – and soon. The reputation of the whole UAE depends upon it."  

Free market capitalism without the difficult central teaching of Adam Smith.  But done of course not to bail out bankers but to protect the reputation of the whole UAE.   A worthy goal.

Perhaps, while Abu Dhabi is at it, it might help out the BBA by guaranteeing the debt of Saad and AlGosaibi.  The repuation of the GCC may well depend on it.

Sadly, though, there is no thought of the reputation of banks and investors who have yet gain made some bone-headed lending and investment decisions.  Who indeed will restore their reputation?  Though one might search long and hard before one finds any criticism as scathing as that levied against Dubai.  In any case, responsibility is dealt with quite nicely by the market as described in the next point.

Fourth, once again the transference of responsibility.  When the going gets tough, the tough apparently find a scapegoat.  Clearly, not the sober careful bankers and investors  themselves.  No, it is Abu Dhabi who misled them.  And as well, I suppose, the now hapless Sheikh Mohammed.

Abu Dhabi Banks' Exposure to Dubai

As per Maktoob:  "Abu Dhabi Commercial Bank has at least 8-9 billion dirhams ($2.2-$2.5 billion) exposure to Dubai World and related entities, forcing the bank to book more provisions, a senior executive of the bank said. First Gulf Bank has at least 5 billion dirhams ($1.4 billion)".  Followers of Middle Eastern finances will recall that to date among UAE banks who have declared their exposures, ADCB is the largest lender to Saad/AlGosaibi with some US$609 million equivalent.

At 3Q09, ADCB had some AED20 billion in equity.  At that date FGB had AED22 billion.  Both banks should be able to withstand the shock.  The Abu Dhabi Government is not going to let these banks fail - particularly given their connection to the government.  One is 65% or so owned by the Emirate of Abu Dhabi.  The other has a "major" ownership stake by the sons of Sheikh Zayed (deceased father of the current Amir).

Other Abu Dhabi banks are likely to have significant exposures to Dubai.

Perversely, these large exposures may be good news for Dubai as one would expect these banks to take a softer line in any restructuring because of the government connection.

Abaar Loan

AlQabas quotes an unnamed analyst at National Bank of Abu Dhabi that the loan may be for:

1. Temporary refinancing of a maturing loan while Aabar sorts out financing options.
2. Purchase of additional shares in Daimler.
   

Dubai US$5 Billion Debt Sales - Less Than Meets the Eye and An Explanation for the Restructuring at Dubai World

Two stories came out today with contradictory themes:

1. The first was that Dubai had successfully sold US$5 billion in bonds from the Second Tranche of its US$20 billion program.  
2. The second was that Dubai announced the appointment of a Chief Restructuring Officer at Dubai World and more importantly asked creditors for a payment standstill until May 2010.

The explanation for this dissonance is in an article in Thursday's The National (Abu Dhabi).

It seems that the US$5 billion sale was actually US$2 billion in cash now with the promise to buy the remaining US$3 billion over the next year.  

US$ 2 billion is not enough to address the Emirate's  near term cash flow needsd - payments to suppliers and debt maturities, including  an AED12.85 billion Sukuk (US$3.5 billion bond) issued by Nakheel. 

So the Emirate was left with no option but to ask for a six-month debt repayment standstill.  

Looking behind this, what are the conclusions we should draw.

1. As I posted earlier and as The National confirms, this is an Abu Dhabi Inc. deal.  It is not a private sector non governmental deal.  
2. Despite attempts by Dubai to spin the bond sale as proof of access to the market, the Emirate  has only limited access.  If it did, it would have raised more money and not needed to tap Abu Dhabi again.  Today's announcement is likely to further restrict access.  
   
3. Abu Dhabi is still supporting Dubai but extending the time over which the cash is infused.  This presumably is to put pressure on Shaikh Mohammad to make some real changes. Until just recently Dubai was talking of raising the full US$10 billion of Tranche 2.
4. It is also a signal to the market - to other creditors - that Abu Dhabi is not necessarily the lender of last resort for Dubai.
   
5. The sudden dismissal earlier this week of Dr. Sulayman at DIFC and the replacements at the IFD are probably related.  And perhaps preparation for today's bad news.  Change that hopefully creditors will believe in.  New sober faces.  The guys who will use both sides of the Xerox paper.
   
6. Expect to see more evidence of a fundamental change in Dubai's strategy.  The new CRO at Dubai World is just the first step in this direction.
7. The standstill request is going to send shockwaves through the financial markets. Look for a reaction at the Dubai Exchange and some spillover elsewhere in the GCC. 
8. The credit markets - already struggling with Saad, AlGosaibi, The Investment Dar, Awal, The International Banking Corporation, Global Investment House - are likely to react negatively.   Not just foreign lenders and investors but also regional ones.  Spreads on Dubai Credit Default Swaps are going to increase.  Banks and bond investors are going to become more cautious across the region.   
   
9. As a result, Dubai's market access is going to be reduced.  It is going to have to focus primarily on restructuring its existing debt.  New financing, if any, is likely to be relatively modest compared to the past.  
10. This will have a direct impact on the local economy which was largely fueled by  an intense multiplier effect of a series of transactions of apparent (and note that is a deliberate word) increases in value - but whose primary basis was debt.  
    
11. Even Aabar may be impacted.  It could wind up paying more for the refinancing for its recently announced six month US$1.625 billion club loan.
    

The announcement seems to have been timed  to the Eid holiday - no doubt in the hopes that some of the shock will dissipate before markets begin trading again next Monday.

There will be more to come.  And the prognosis is not for good news.

Aabar Raises US$1.6 Billion Six Month Club Loan

Aabar disclosed to the Abu Dhabi Exchange that it had raised a US$1.625 billion six-month club loan from a group of international and local lenders.

Looks like a bridge to a capital markets issue or perhaps a syndicated loan.