Weekly international investment round up to December 1, 2009
Today’s ‘National Day’ celebration in the United Arab Emirates is going to be somewhat muted following the worst financial crisis ever to strike the region. Dubai World’s efforts in seeking to delay the repayment of billions of dollars worth of debt has created turmoil in the UAE and could have widespread consequences across already nervous global stock markets. Dubai’s main index dropped by over 7 per cent in its first day’s trading since their government announced details of the proposed debt delay and caused its neighbour Abu Dhabi’s main index to suffer a record fall.
Anticipated repayment problems revolving around Dubai’s whole debt mountain estimated by Moody’s at $100 billion dollars sparked negative initial reactions with New York’s Dow Jones closing 1.5per cent lower. France, Germany and the UK’s main markets also took a 3 per cent knock while Hong Kong’s Hang Seng closed almost 5per cent lighter.
In my 24th September article entitled ‘Shaken Arabia’ I highlighted the precarious state of Dubai’s economy and how, following the mother of all spending sprees, Istitmar World could be facing liquidation and that its real estate unit ‘Nakheel’ was struggling to refinance the $3.52 billion Islamic bond set to mature in December. Istitmar and Nakheel both form part of Dubai World which is one of the emirate’s three flagship holding firms the others being the Investment Corporation of Dubai and Dubai Holding. The thrust of my September article was how the widespread fallout of Middle Eastern money drying up shouldn’t be discounted, even here in Malta we could feel its effects. For example, Sama Dubai, a partner in the SmartCity Malta venture, is a member of Dubai Holding and while it would appear their bonds are not yet directly affected I believe they have a $1.25 billion bond due for repayment in June 2010, and two separate bonds of $1.16 billion and $1.5 billion due in August 2011. The question surely is ‘can they repay them on time?’
The United Arab Emirates was formed after the British left the Persian Gulf in the early 1970’s; it is a federation of seven members with each retaining control of their own economic development. Out of the seven, it is only Abu Dhabi who controls substantial oil reserves. Dubai’s ambitious growth plans includes it becoming the regions major financial services centre, these hopes have now been dealt a severe blow as it turns to its neighbour, Abu Dhabi, to bail it out of this mess. Consider Dubai seeking help from Abu Dhabi similar to Malta seeking help from Gozo!
The two emirates share a history of great rivalry each having competing airlines for example so, although it is unlikely that Abu Dhabi will let its neighbour completely fail any support they offer will come at a price and for investors this is likely to mean Abu Dhabi becoming the region’s premier financial hub in the future. Whilst it may have been opportune, the timing of the Dubai government’s announcement just before the US markets closed for their Thanksgiving holiday and on the eve of the Muslims Eid celebrations have also done little to help enhance its reputation.
Mark Lamb is Head of the Life Dept. at Citadel Insurance plc which is authorised to carry on general and long term business of insurance under the Insurance Business Act, 1998 and is regulated by the MFSA. Contact by email: email@example.com Tel; 25579000. Website: www.citadelplc.com
This article does not intend to give investment advice and its contents should not be construed as such. Information in this article has been obtained from various public sources and is given by way of information only. Readers are always encouraged to seek financial advice before making any investment decision.