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First with Financial Comment from Arabia

40% Dubai World debt haircut, seven-year deferral spooks DFM

with 2 comments

The Dubai Financial Market closed 3.5 per cent lower on Sunday after Zawya Dow Jones said the creditors of Dubai World – which is seeking to restructure $22 billion in debt – may be offered 60 cents in the dollar after seven years.

The news agency cited unidentified persons familiar with the plans but there has been no official announcement or confirmation of what can only be speculation at this stage.

No news on rescheduling debts

However, the sharp stock pull back is a reminder of just how sensitive this market remains to the Dubai World debt ‘rescheduling’ as it is called in the local press who think talk of a ‘debt crisis’ before the Dubai World sukuk was repaid in full last December was alarmism by the international media.

Any thought of 40 per cent losses for investors, and a long delay in the return of this capital will result in big provisions for the lending banks, both local and international. It is also not clear whether Dubai World’s ultimate repayment will have a government guarantee or carry interest payments.

There is also a lack of information about how long this matter is likely to take to resolve. The banks have yet to agree to an official debt standstill, and until that starts the six-month clock for a new agreement can not commence.

Speculation and uncertainty

Stock markets hate uncertainty and the Dubai Financial Market is going to be plagued by speculation until the debt position is resolved. And given the substantial global press coverage of the debt crisis late last year this is also going to create a hiatus in local business investments and the moribund sukuk market for local bonds.

It is also bound to lead to further speculation about what other debts may or may not lurk beneath the surface in Dubai. Who else has overdone their construction schedule and is now stuck with half built, unsaleable or unleaseable property?

The fingers are pointing in all directions at the moment and probably make things look considerably worse than they really are in practice. But until matters are all out in the open, audited and agreed, the speculation will be that the true position is far worse than it actually turns out.

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Written by Peter Cooper

February 14, 2010 at 3:54 pm

2 Responses

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  1. .6o on the dollar after 7 years is not too bad lol.. My case has been over 7 years and I have not collected a Fils yet. That is pretty messed up for all those that helped build Dubai to get told that they can collect 60% of their money after 7 years.

    Andy

    February 15, 2010 at 3:42 pm

  2. This is a rot that has taken root, with governments around the world soon going to default, and China, the econonmic miracle, turning into a Japan cum Soviet Union, but without natural resources.

    crisismaven

    February 15, 2010 at 1:23 am


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