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Posts Tagged ‘Dubai’

S’pore doesn’t have the problems of Dubai

In Economy on 06/07/2010 at 5:49 am

Yesterday, we reported that Dubai is relooking its growth model (under Blame GKS?), sumething that the S’pore govmin is complacently  not doing.

But let’s to fair to the S’pore government by pointing out that S’pore doesn’t have the debt problems of Dubai.

According to FT: [T]he state-owned DW [Dubai World] is close to sealing an agreement on restructuring $23.5bn in debts.

Dubai’s state-backed companies face annual debt repayments of $15bn-$20bn. Analysts say the limited ability to raise funds suggests that further debt restructurings, causing pain to domestic and international lenders, are likely …

The government is set to turn its attention next to Dubai Holding, a conglomerate owned by the ruler, which has around $12bn in debts. Its investment companies, say analysts, could receive government support and are already in talks with banks for a rescheduling of debt.

The moral of the story: The PAP government is no different from other governments; radical change will only come when things go badly wrong. One LKY is still around from 1959. The youngest cabinet ministers are three generations his junior. GCT has been around since the 1970s and the PM since the mid 1980s. In 1959, Eisenhower was the US president, in the early  70s Nixon, and in the mid-80s the president was Reagan. All three presidents are dead.

Dubai – Harbinger of China’s problems?

In China, Economy on 08/12/2009 at 9:57 am

I think the concerns in the media about Dubai World’s “default” is the PR hype of careless creditors, trying to create hysteria to pressure the ARabs.

So I very nearly missed this very thoughtful insight in FT.

“There is a country on the other side of Asia, whose currency is also pegged to the dollar. Although its economy is expanding rapidly, short-term interest rates are below 2 per cent and the money supply has grown by 30 per cent over the past year.

‘This country is experiencing a real estate boom. Reports tell of a newly constructed ghost city with dwellings for a million people. Speculators are reportedly snapping up luxury developments, which remain unoccupied long after completion. Despite a 20 per cent vacancy rate in the capital city, new skyscrapers are being planned.

‘This country’s economy is also state-directed. Its rulers are looking for 8 per cent annual GDP growth as they seek to diversify their economy away from exports. State-owned enterprises are borrowing and investing to meet this target. Construction and infrastructure are taking an ever greater share of GDP, even though many projects are likely to prove unremunerative. A mentality of “build and they will come” prevails.

‘In short, economic conditions in China have much in common with those that prevailed until recently in Dubai. The population of China is roughly a thousand times greater than the tiny emirate’s. For this reason alone, the lessons from Dubai should be heeded.

The writer, Edward Chancellor, is a member of GMO’s asset allocation team.

Grantham Mayo Van Otterloo is a Boston-based asset management firm well known among institutional investors.

Jeremy Grantham, the founder, built much of his investing reputation by correctly identifying speculative market “bubbles”. He avoided investing in Japanese equities and real estate in the late eighties, as well as technology stocks din the late nineties.

He began warning about the overvaluation of equity and credit markets in 2006, well before the start of the present crisis, “In five years, I expect that at least one major bank (broadly defined) will have failed and that up to half the hedge funds and a substantial percentage of the private equity firms in existence today will have simply ceased to exist.”

Well Bear Sterns,  Lehman collapsed. And Merrill Lynch, Citi,  RBS, HBOS needed help to avoid failing.

“Mr. Chancellor is the author of several books including Crunch Time for Credit (2005) and Devil Take the Hindmost: A History of Financial Speculation (1999), a New York Times Notable Book of the Year. Prior to joining GMO, he worked as deputy U.S. editor for Breakingviews.com in New York and for Lazard Brothers.”

Dubai World “Default” — An Alternative View

In Uncategorized on 04/12/2009 at 11:30 am

Yesterday a senior writer in BT vented the conventional outrage about Dubai. “HERE’S how not to communicate you’re in a financial hole: Put out a terse statement asking for a six-month payment moratorium on US$60 billion of debt that you owe, and then promptly close shop for a four day public holiday.

I beg to defer. If you were a debtor who knew his Keynes ( “If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.” ) wouldn’t you want your creditors to see reason by showing them the consequences of their unreasonableness?

“That is what Dubai World did last Wednesday. It scared the daylights out of the markets and, in the absence of any further information, triggered all manner of paranoid speculation. Is Dubai itself going bust? Will there be contagion? Who will be next? Can already weakened banks withstand this?” (BT)

So Dubai Inc. succeeded in showing the creditors why they should be reasonable: they could lose everything by being unreasonable. Don Corleone would be proud.

Then after helping them see reason, wouldn’t you want to show them that things are not that bad? That the debt to be restructured was only US$26 billion, not US$60 billion.

Well that’s what Dubai Inc. did “Thereafter, Dubai World, which has operations spanning property, ports, infrastructure and much else, tried to reassure everyone that things actually aren’t so bad. It revealed that it plans to restructure only US$26 billion of its debt. Moreover, many of its assets are on a ‘stable financial footing’ such as Dubai Ports World, the Jebel Ali Free Trade Zone and the investment arm Istithmar, and these would not be part of any deal; the restructuring will apply only to the dud assets, mainly property.” (BT)

And wouldn’t you want to remind the creditors that that the problem is theirs, not yours?

This is what Dubai Inc. did “After the emirate finally emerged from its holiday this week, Dubai’s government made clear that it will not stand guarantee for the debts of Dubai World, even though the latter is a state-owned conglomerate.”*. With support from Abu Dhabi who “indicated, ever so cautiously, that it will consider providing financial support for Dubai World, but only on a ‘case-by-case basis’.”. (Quotes from BT).

All in all, the way Dubai Inc. handled the issue shows that the big Western banks can be jerked around by debtors with attitude. BTW, Dubai World’s adviser is a house that many in the City of London, and New York still think of as a Jewish house: Rothschild.

After all as the BT writer acknowledges after some caveats, and gnashing of teeth, “Eventually, however, Dubai will be back as a vibrant business and financial centre. It has the location, it has the connectivity and it has the DNA that no other city in the Gulf can come close to matching.”.

The Arabs of Dubai Inc. have the right attitude towards banks and other international creditors: the latter have short memories, and not much scruples. If you are rich, they will do business with you.

Finally a wicked thought. Someone unscrupulous in the know could have made a fortune: shorting on Thursday and Friday when Dubai was closed. And covering back after Dubai Inc. clarified its initial announcement. But that would be taking cynicism too far.

* Would the writer say the same of Temasek, Keppel or any Singapore GLC? One suspects not .

Temasek’s exposure to Dubai (Part 1)

In Temasek on 28/11/2009 at 7:43 am

Standard Chartered and HSBC are the most exposed, NCB Stockbrokers estimates, with 7 per cent and 2 per cent respectively of their loan books there.  Both reported sharply increased credit impairments against their loans to the Middle East in the first half.”

From the FT

And from the Guardian

“The City is speculating that Standard Chartered and HSBC could be the banks facing the biggest losses after developing close ties to the Middle East.Goldman Sachs said an initial estimate put HSBC’s potential losses at $600m, but only if a deal with Dubai’s partners in Abu Dhabi failed to materialise and Dubai was left to fend for itself in negotiations with its creditors.”

Full article

According to the Emirates Bank Association, HSBC has $17bn invested in UAE, while  Standard Chartered has $7.8bn

Will be looking at CapitaLand’s and KepLand’s portfolios though these companies prefer Abu Dhabi. And to that of DBS. Remember there is a DBS Islamic Bank. Gee DBS is accident prone: what with HN5 Notes one yr before Lehman collapsed, Middle East exapansion isonce 2006, 2007.

Let’s hope its move into encouraging  investments in ETFs via POSB MyHOME Fund isn’t a’cursed.

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