Things looking up a bit this morning. The UAE finally announced it would provide support to local and international banks exposed to this:
U.A.E. Eases Credit After Dubai World Debt Delay (Update1) Share Business Exchange*******Facebook| Email | Print | A A A
By Arif Sharif
Nov. 30 (Bloomberg) -- The United Arab Emirates’ central bank eased credit for lenders and said it “stands behind” the country’s local and foreign banks as they face losses from Dubai World’s possible default.
Markets from Asia to the U.S. fell last week after Dubai World on Nov. 25 announced that it was seeking to delay loan repayments. Dubai’s stock markets will trade on Monday for the first time since the news. Banks will be able to borrow money from the regulator for half a percentage point above the three- month local benchmark interest rate, the Abu Dhabi-based Central Bank of the U.A.E. said in an e-mailed statement yesterday.
“This is a timely pre-emptive move from the central bank,” Ahmet Akarli, an economist at Goldman Sachs Group Inc. in London said in a note to investors. The central bank is “ensuring that local markets are operational” and banks “have access to ample liquidity.”
In addition they just announced a coupon payment that was due today from JAFZA will be paid as scheduled:
Debt-laden Dubai World's unit Jebel Ali Free Zone Authority, or Jafza, faces on Monday a coupon payment on a 7.5 billion U.A.E dirham ($2.04 billion) Islamic bond in the first key test of whether it will default.
The Islamic bond, or sukuk, was issued in November 2007 through a Cayman Islands-registered company called JAFZ Sukuk Limited and pays 130 basis points over the six-month Emirates Interbank Offered Rate, according to Zawya.com.
The coming coupon payment is estimated to be between AED125 million and AED135 million, according to analyst calculations.
It appears to me Dubai/Abu Dhabi "tested the waters" on the timing and method they used to begin this unwind process. They watched the response over the past 4 days and it obviously has become apparent to them they are not going to get away with a "stand back and watch it happen" strategy.
I would guess Abu Dhabi is going to backstop the bank losses as they need the banks to provide lending facilities going forward. However, it appears to me they are "culling" the crap companies from the Dubai portfolio and are going to put the losses on investors in these companies. Selective but actually not a bad strategy at this point.
It will be interesting to see how the DFM does today and how much FDI is removed.
In any case, in my opinion this is a game changer for the future of Dubai. The next 6 months will be VERY interesting.