Max Keiser on 'Tsunami alert': Dubai debt crisis awakes storm?

Dubai rejects guarantee for Dubai World

(FT) -- The government of Dubai on Monday said it would not guarantee the debt of Dubai World as it sought clarify comments made last week by the state-owned entity that sent shockwaves through global markets.

In its first public comments since the crisis erupted over the liabilities of its public companies, Dubai's department of finance on Monday outlined its policy towards the outstanding loans which total $59bn.

Abdulrahman al-Saleh, director general of Dubai's department of finance, said in an interview with Dubai TV that creditors had to take responsibility for their own lending decisions and differentiate between advances to companies and the state. He also said global markets had overreacted to the news.

Mr Saleh admitted that creditors of Dubai World, which owns DP World, the ports operator, and Nakheel, the property investment company, would be affected in the short-term but claimed there would be long-term benefits as the government restructured the business.

The Dubai department of finance said last week it would request a standstill on all Dubai World's debts, including a $4bn sukuk or Islamic bond payable on December 14.

Global investors were confused by the standstill request as Dubai officials had said for the previous three months that the trading and financial hub would face no problems in paying off its debts.

The local Dubai Financial Market closed down 7.3 per cent on Monday, its biggest drop in a year, in its first trading session since the Eid al-Adha holiday. Other Gulf markets were closed because of the holiday.

But shares in DP World, one of Dubai's most valuable state assets, tumbled 15 per cent on the Nasdaq Dubai bourse.

Five-year credit default swaps for Dubai rose on Mr Saleh's comments, widening to 594.6 basis points according to CMA Datavision, after earlier tightening on UAE central bank intervention announced on Sunday.

Elsewhere, Dubai World has made the payment owed today on a Dh130m coupon on a sukuk issued by the Jebel Ali Free Zone Authority, the industrial park next to Dubai's largest port owned by Dubai World, bankers said.

But Nakheel, the company at the centre of Dubai's financial woes, on Monday asked for all three of its sharia-compliant bonds worth $5.25bn to be suspended from trade "until it is in a position to fully inform the market".

Sentiment was not helped by a note from EFG-Hermes, a local investment bank, which said that the estimates of Dubai's $80bn debt burden, consisting of bonds and syndicated loans, could rise to $120bn-$150bn, if bilateral loans and other missing information is included.

In Dubai the mood among traders returning to work after the religious holiday was sombre.

"We are very disappointed -- we had expected the market to drift down. Instead it fell down ... just like that," said Muhammed, a private investor, as he looked at a ticker covered in red.

"This is punishment day. Why didn't we sell last week? This is punishment for the unexpected news from Dubai World last week," he added.

The UAE markets limit trade on liquid stocks when they fall 10 per cent. Emaar, a major listed developer in Dubai and an important bellwether for the emirate, slumped 9.9 per cent as soon as the DFM opened.

The Abu Dhabi Stock Exchange, the third bourse in the United Arab Emirates, lost more than 8 per cent in heavy trading.

"It's a short-term panic sell-off," said Emad Mostaque, an emerging markets fund manager at Pictet in London. "There are 100m sell orders on all the higher traded shares."

The UAE markets close again on Wednesday and Thursday for the country's national day, before reopening on Sunday.

Egypt's bourse lost 7.9 per cent as international investors take a more negative view over regional risks.

http://www.cnn.com/2009/BUSINESS/11/30/dubai.uae.markets.ft/index.html

The Dubai Financial Nuke

By Clive Maund
Posted 06 December 2009 @ 04:48 pm ET

We got the heavy reaction in gold that we had been expecting for some days on Friday. The problem is that we also got a big important breakout in the dollar, which we had acknowledged as a significant possibility for some time. This is not good news for commodities and not good news for the stockmarket either as it signifies the onset of a flight to cash such as we witnessed last year.

What was really odd about yesterday was that we saw a big dollar breakout, but Treasuries fell heavily. We are now believed to be on the verge of another massive deflationary downwave, similar to last year, but worse. However, this time it is very possible that while we will see a flight to cash, we will not witness a stampede into Treasuries, or at least not on anywhere near the same scale. So what is going on here? - what are the principal underlying dynamics? Anyone who has had the misfortune to watch a nuke exploding, misfortune because you get irradiated, knows that first you see a very bright flash, then there is a period of tranquillity as the flash dies down and the mushroom cloud starts to rise, before the shockwave hits, when things get pretty rough to say the least.

Youv'e seen the flash - now get ready for the shockwave...

What happened in Dubai just over a week ago was the bright flash, and the media have used the intervening period before the shockwave hits to reassure everyone that everything is going to be just fine - "You just relax, nothing will come of it, it's only $60 billion down the drain or whatever - have a cup of tea". The trouble is that it's not $60 billion at all - the reality is that this is a default on a massively larger scale. Dubai was a vast sinkhole into which western banks and governments unquestioningly poured not just billions but trillions of dollars which was then leveraged enormously by means of derivatives enabling Dubai to build itself up into a latter day Rome, with a level of opulence and extravagence that would have made Caesar green with envy.

When people think of Dubai the things that come to mind are the massively extravagent 7-star hotels, the towering record breaking skyscraper, palm-shaped island resort complexes etc and forests of new office buildings and apartments etc. What the vast majority don't realize is that the stupendous leverage afforded by derivatives has in addition enabled Dubai to create an immense global empire of businesses, most of the elements of which are broke, having racked up staggering levels of debt. Dubai is the nexus of the derivatives pyramid and it is flat, stony broke. Where did all the money come from to pay for all these things? - why from taxpayers and pension fund contributors the world over of course, but especially in the US, with Wall St acting as a giant conduit sluicing a torrent of cash into Dubai. The interesting thing is that there was never any accountability - countries and companies vied with each other for the privelege of pumping money into the exalted kingdom, seduced by its supposedly limitless oil wealth, and requesting or requiring guarantees was regarded as impolite. Now that Dubai is broke, the Dubai government has suddenly distanced itself from Dubai World, and the attitude towards the Western banks and governments who have poured trillions into Dubai is "Tough luck - you lose, suckers". What this means is that trillions of dollars which are now counted as assets on the balance sheets of banks worldwide and especially in the US are actually liabilities. So what do you think is going to happen to the stock prices of these banks - and stockmarkets generally, when the world wakes up and acknowledges this reality - when the shockwave hits?? Small wonder that the charts for Goldman Sachs and J P Morgan look very like the market charts before the '87 crash, but that was "small potatoes" compared to what is coming down the pipe this time.

Go ahead, take a good look at it - after all, You helped pay for it!.

If money panics out of commodities and stocks it has to go somewhere. Last year, as we know, it took refuge in US Treasuries, especially short-term Treasuries and it drove the dollar up as massive across the board liquidation went first into cash which was then used to buy Treasuries. While we can expect a similar dynamic to be in play this time round, largely because most investors simply don't have the imagination to think of an alternative to US Treasuries, there is a complicating factor, as highlighted repeatedly by Karl Denninger in his recent highly pertinent articles, which is that the US has been making a mockery of foreign Treasury buyers on an ever increasing scale with its endless monetization and ramping of the money supply - in effect treating them as morons by paying them zilch interest rates and undermining the dollar at the same time. They are right - they are morons, who are one way or another are going to get what's coming to them - after all, who but an imbecile buys the debt of a bankrupt country? However, there is a saying that "you can't fool all of the people all of the time" and foreign Treasury buyers and holders are getting increasingly fed up with their cavalier treatment at the hands of the US, and, in the absence of another deflationary implosion causing a renewed flight into the dollar and Treasuries, they look set to start dumping them, which as Denninger points out would set in train a "death spiral" of rising interest rates one consequence of which would obviously be a crashing stockmarket. So whether we see a rising dollar or a falling dollar it`s "Zugzwang" for the US stockmarket and economy - any move made loses, as does no move.

The rate of advance of the broad stockmarket has been slowing for months. On the 6-month chart for the S&P500 index we can see that it appears to have arrived at the top point of a large "Distribution Dome". If this Dome is valid - and it appears to be so - then we can expect the market to turn seriously lower soon, and we should remain aware that markets generally drop twice as fast as they go up, so it will not have to contact the Dome boundary on the way down - on the contrary, given the parlous fundamentals outlined above it will probably drop like a rock.

Bank stocks look set to be particularly hard hit in the event of a second downwave. This is apparent from their deteriorating relative strength in recent months - they are already very close to crashing key support as is clear on the charts for Mordorwebsite - Goldman Sachs and J P Morgan. These 2 elite companies have had the richest of pickings during the financial crisis - being at the front of the line for everything, which is why their stock prices recovered so well - and because of this they are widely assumed to be invulnerable. They are not expected to be spared during the second downwave however, and their current lofty valuations make them a good candidate for shorting or Put options.

http://www.ibtimes.com/articles/20091206/dubai-financial-nuke.htm

Dubai gets surprise $10 billion bailout
Abu Dhabi provides ‘essential lifeline’; investors speculate on conditions
Reuters
updated 7:22 a.m. CT, Mon., Dec . 14, 2009

DUBAI - Abu Dhabi provided its flashy but debt-laden neighbor Dubai a $10 billion lifeline to last its troubled flagship company until the end of April, heading off a bond default on payment day and sending Gulf markets higher.

Dubai World, the conglomerate at the center of a $26 billion debt storm, still needs creditors to agree a standstill on a massive restructuring in order to get financial support to cover working capital and interest expenses.

And analysts said the emirate's troubles were not over.

"We've still got $35 billion due in bonds, loans and repayment over the next couple of years, so this is only one thing," said Saud Masud at UBS. "The big question is how are they are going to do this next step?"

For now, Abu Dhabi has given Dubai World some breathing room. Some $4.1 billion of the funds are earmarked to repay its property developer unit Nakheel's Islamic bond due for payment Monday -- potential relief for investors who had marked the bond's price down to less than half its face value at one stage last week.

"The (agreement is) on condition of the company being successful in negotiating a standstill previously announced with remaining creditors," a Dubai government source said in a conference call with journalists.

A government statement said the remaining funds would support Dubai World until the end of April next year.

Dubai also said it would set up a new bankruptcy law, similar to U.S. and British practices, and which would take effect immediately, in the event Dubai World needs to seek protection from creditors. The law is due to made available later on Monday.

"The fund will also be used for the satisfaction of obligations to trade creditors and contractors and discussions with contractors will begin shortly," said the source, who spoke by telephone and would not give his name.

‘Crucial and essential lifeline’
Dubai World rocked global markets on November 25 when it asked creditors for a standstill on $26 billion in debt mainly linked to its two property firms, Nakheel and Limitless World.

"This is kind of above and beyond what people expected. It is a crucial and essential lifeline," said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole in Riyadh. "That should bring in a lot of confidence. Basically Abu Dhabi is footing the bill.

"It will take time for the implications to unfold. I highly doubt this kind of money has no strings attached. There was no other choice for Abu Dhabi but to bail out Dubai. The (United Arab Emirates) federation would have been at stake."

Dubai's benchmark stock index led a surge on regional markets, jumping more than 10 percent, while Abu Dhabi rose 7 percent in early trading. The U.S. dollar jumped against the yen on the news, while Asian stock markets rebounded. U.S. S&P stock futures jumped 0.7 percent, reversing early losses, and European shares were also higher.

Abu Dhabi, the largest member of the United Arab Emirates and with most of the oil resources, had long been seen as a white knight for its heavily leveraged neighbor, Dubai.

Conditions?
But it was unclear on Monday what conditions the bailout entailed.

There had been speculation Dubai would be forced to hand over prized assets, such as Emirates airlines, in return for assistance.

"This is a government to government fund, the terms of that fund are internal to the government of Abu Dhabi and Dubai," the Dubai government source said. A government official said there were no strings attached.

The government source said the restructuring process could include asset sales, but they would be limited to Nakheel and Limitless, excluding Istithmar World assets, which owns U.S. luxury retailer Barneys, or its port operator DP World.

The property unit's assets included man-made islands shaped like palms and a map of the world in Dubai, as well as mixed-use real estate projects in Indonesia and Malaysia.

More debt looming
The UAE central bank said it would back local banks who have exposure to Dubai World in the wake of the news, which was the least expected of all options Dubai had available.

Dubai World said it would continue to work with creditors to negotiate a standstill in an orderly way.

Dubai's creditors, which include London-listed Standard Chartered, HSBC, Lloyds and Royal Bank of Scotland, along with United Arab Emirates lenders Abu Dhabi Commercial Bank and Emirates NBD, effectively have until Dec 28 to agree to the standstill, when the Nakheel bond's grace period ends.

The excess would be used to help government-controlled Dubai World up until the end of April 2010, the Dubai government said.

Sheikh Ahmed bin Saaed al-Maktoum, chairman of Dubai's fiscal committee, said Dubai's government would act at all times in accordance with market principles and internationally accepted business practices and the emirate would remain a strong and vibrant global financial center.

The fund news was welcome news for jittery investors but still left questions about how Dubai would manage billions more in debt obligations coming due next year.

The government source said other government related entities such as Borse Dubai, which has $2.5 billion of debt maturing in February, and Dubai Holding, which has about $1.9 billion maturing in the first half of 2010, would be assessed on a "case by case basis" and the Dubai World deal was not an indication of future deals.

http://www.msnbc.msn.com/id/34411600/ns/business-world_business/

Shattered Dubai dream echoes across Mideast
Laid off workers leave ‘in tears’; remittances dry up, cutting funds to region
The Associated Press
updated 2:39 a.m. CT, Fri., Jan. 8, 2010

AMMAN, Jordan - Mahmoud Tamimi's friends call it the "Dubai syndrome" — the insatiable longing for a city he loves but was forced to leave. Back in Dubai, the 31-year-old had a good job, nice apartment and a $3,700 monthly salary, dozens of times what he'd ever made before.

Then, early last year, the Jordanian of Palestinian origin was laid off as Dubai's economy plunged. With his residency permit tied to his job, he couldn't stay. He now squeezes into a two-bedroom apartment with his wife, daughter and seven other family members in a poor neighborhood of Jordan's capital, vainly looking for work.

Dubai's downfall is not only hurting the city-state and the financiers who bet big on its promises.

Even before Dubai's financial crisis, the sheikdom's growing economic woes had begun rippling out across the Arab world, forcing workers like Tamimi back to their home countries, where jobs are scarce and wages often rock bottom. That is eating away at the money many Middle East families depend on, sent home from relatives who work in Persian Gulf countries and emirates such as Dubai.

It is bad news for the Arab world, where chronic economic stagnation, high unemployment and low-paying jobs have long caused frustration among workers, especially the young.

Worker remittances plunge
Overall, the amount of money shipped back home by workers abroad, called remittances, is expected to fall by more than 7 percent this year across the Mideast and Arab north Africa, the World Bank estimates. That is the first drop in a decade.

In some countries the impact is worse: Worker remittances into Egypt have already plunged nearly a quarter over the past year, the International Monetary Fund said in October.

Arab workers go to many places for jobs, including Europe. But the oil-rich Gulf has long been the bedrock of Mideast remittances, with Dubai recently its most turbocharged engine.

Dubai built itself into a booming trade and tourism hub on the backs of foreign workers like Tamimi, whose family originally hails from the West Bank town of Hebron. Only about one in 10 of Dubai's roughly 1.5 million residents is a citizen.

Expatriate Arabs are not the only foreigners hurt by Dubai's downfall. Low-paid Indians and other South Asians provide much of the hard labor to raise skyscrapers including the world's tallest, the Burj Khalifa, which opened this week. Filipinos fill many of the service jobs.

But in per-capita dollar terms, it is the Arab world that's being hit hardest.

Huge effect on neighboring economies
Overall, worker wages from the Gulf — including Dubai and other places like Saudi Arabia and Kuwait — account for a whopping 15 to 20 percent of the economy in countries like Jordan, Lebanon and Egypt that are considerably poorer than the oil-fueled monarchies of the Gulf, said Nasser Saidi, a former Lebanese government minister who is now the chief economist at the Dubai International Financial Center, a state-run banking hub.

Under-the-table and other "unofficial" transfers of wealth outside the banking system mean the effect on local economies could be twice as high, he said.

All that means the recent decline in remittances — combined with a drop in trade and tourism also caused by the economic crisis — could leave many of the Arab world's poorer countries slower to recover than other parts of the world as the global economy pulls out of the crisis, the IMF said recently.

Even foreign Arab workers who remain in Dubai "are going to get less money than before" to send home, said Dilip Ratha, an economist at the World Bank.

Lack of opportunity linked to extremism
Dubai's latest debt problems will almost certainly make things even worse.

That has worried some who say high unemployment and low pay are already a core cause of hopelessness, and sometimes extremism, in the Mideast.

"Peace is not just the absence of conflict. It is the presence of opportunity and cooperation, and a sense of justice and fairness and movement," former President Bill Clinton told students in Dubai late last year, drawing a link between suicide bombing and a lack of opportunity in some parts of the Muslim world.

For Arabs from Casablanca to Baghdad, Dubai before its downturn was an antidote to that hopelessness: A rare exception to the scraggly, overcrowded cities that sprawl through much of the Arab world — a beacon of prosperity, offering a better and more liberal life.

In some cases, the fast-growing sheikdom promised an escape from poverty, violence or other societally imposed straitjackets.

For others, it was simply a place to yearn for and take risks in — an aspirational oasis, an Arab city to be proud of — just as young Americans try to make it big in New York or Hollywood.

The city also had a frantic pace and sky-high rents. But for many Arab workers, the perks outweighed that.

'In tears'
"We were in tears when we left," Tamimi said during a recent interview at home in Amman. Outside the small, crowded apartment, vendors thrust rickety wooden carts through jammed alleyways, their shouts competing with a nearby mosque's call to prayer — a stark contrast to Dubai's wide freeways.

"We just couldn't look back, because there was nothing we'd be able to do to stay," he said.

Tamimi's well-paying blue-collar job coordinating construction projects for a building firm was washed away when the global financial crisis swamped Dubai, battering the boomtown's real estate, trade, tourism and financial industries all at once. Within weeks, plans for more spectacular — even ridiculous — manmade islands and soaring skyscrapers went out the window. Property prices and dealmaking plunged.

Layoffs soon followed.

Swiss bank UBS predicts the city's largely foreign population will have shrunk by 8 percent last year as workers from the Mideast, Europe and Asia lose jobs and leave. Saud Masud, the analyst who made that prediction, said that works out to some 120,000 fewer people in the city.

Egyptian bank EFG Hermes has estimated the population could plunge by more than double that amount.

Now the city-state is asking lenders to renegotiate the terms of a chunk of the at least $80 billion its state-backed companies owe.

Few prospects
As Arabs like Tamimi return to their impoverished homelands, they hit the reality that has long dominated the Middle East — chronic underemployment, low salaries and few prospects.

Arab economies like Egypt's and Jordan's — like much of the developing world — have grown in recent years, helped by a boom in global trade and reforms that loosened government controls on business.

Yet the growth has not yet been enough to wipe out the poverty endemic in many Arab countries or conquer high levels of unemployment. Thus the need for workers to still go elsewhere for work.

Foreign workers who once counted on Dubai as a source of jobs have found few other alternatives. Other Gulf sheikdoms with more oil and gas — like Qatar or the Emirates capital Abu Dhabi — have continued hiring.

For now, though, no city in the region is able to generate the vast amount of jobs that Dubai did before the crash.

There is another factor at play, too.

Liberal oasis
Dubai, though Muslim, is a more liberal place than the rest of the Gulf — with thumping nightclubs, glitzy malls and look-the-other way authorities. Other countries like Kuwait and Saudi Arabia are far more conservative, and impose much harsher restrictions on the lives of workers and their families.

Ramzi, a 28-year-old Lebanese who refused to give his full name to safeguard his job prospects, said he has found work in Saudi Arabia but is holding off to find something in Dubai — where he worked until losing a job working in a shopping mall nine months ago.

For most workers though, the choice comes down to money.

"There is no comparison between Syria and Dubai in terms of opportunities and salaries," said Alisar Hassan, 26, a Syrian studying journalism at Damascus University. She was an assistant director of a marketing company in Dubai that has since shut down, and has yet to find new work.

"My life has changed a lot" since leaving, she said. "There are no jobs and even if there are some, they are with little salaries."

'Wonderful' life lost
Back in Amman, Tamimi's life is also far different from his days in Dubai, when he would spend time with his wife and daughter visiting parks and restaurants in the tony beachfront Jumeirah neighborhood.

He used to send nearly half of his income to family back in Jordan — money those extended relatives have not been able to make up.

Now, without a job, he spends his days watching the world pass by at a small convenience store owned by a friend, worrying what will happen to his uninsured family if anyone falls ill.

He has applied for jobs in Jordan and the Gulf, and made a trip back to Dubai to seek work, but nothing has come through yet. "I had a home there," he said, remembering. "My life there was just wonderful."

http://www.msnbc.msn.com/id/34762339/ns/world_news-mideastn_africa/

Updated March 27, 2010
Head of Largest Sovereign Wealth Fund Missing After Glider Crash

AP

The United Arab Emirates state news agency says the head of Abu Dhabi's sovereign wealth fund -- the world's largest -- is missing after his glider crashed in Morocco.



DUBAI, United Arab Emirates (AP) -- The United Arab Emirates state news agency says the head of Abu Dhabi's sovereign wealth fund -- the world's largest -- is missing after his glider crashed in Morocco.

The official Emirates News Agency said that Ahmed bin Zayed Al Nahyan's glider went down in a lake in Morocco on Friday. The pilot of the aircraft was rescued in good condition, but authorities continued the search for Al Nahyan.

Al Nahyan is the managing director of the Abu Dhabi Investment Authority. He is also the younger brother of Sheik Khalifa bin Zayed Al Nahyan, the leader of the United Arab Emirates.

The Abu Dhabi Investment Authority could not be immediately reached for comment.

http://www.foxnews.com/world/2010/03/27 ... latestnews