Abu Dhabi Commercial Said Owed $1.9 Billion by Dubai
Nov. 27 (Bloomberg) -- Abu Dhabi Commercial Bank PJSC may beowed $1.9 billion by Dubai World, making it the largest creditoroutside the emirate to the state company seeking to rescheduledebt, said two people familiar with the companies.
“We are in touch with Dubai World, and we have been indiscussions more than once today and yesterday,” Ala’a Eraiqat, the chief executive officer of the third-largest lender in theUnited Arab Emirates, said in a telephone interview yesterday. Hedeclined to comment on specifics. “We have a lot of assuranceswhich is a good thing.”
HSBC Holdings Plc and Standard Chartered Plc led declines inbank shares in Asia today, and European stocks fell the most inseven months yesterday after Dubai World, with $59 billion ofliabilities, said it will seek a “standstill” agreement todelay repayment of its debt. Royal Bank of Scotland Group Plc,Lloyds Banking Group Plc and Credit Suisse Group AG slumped onconcern Dubai will rattle lenders recovering from the globalcredit freeze that has triggered $1.72 trillion in losses andwritedowns.
Dubai World, controlled by the emirate’s ruler, SheikhMohammed Bin Rashid Al-Maktoum, borrowed from more than 70lenders to buy assets ranging from stakes in Las Vegas casinocompany MGM Mirage to London-based Standard Chartered throughIstithmar PJSC. The request for a postponement includes $3.52billion of bonds due Dec. 14 from property unit Nakheel PJSC.
“Our exposure is immaterial,” Credit Suisse spokesman MarcDosch said. Spokespeople for Barclays, HSBC, Lloyds and RBSdeclined to comment.
Impact ‘Manageable’
HSBC, Europe’s largest bank, fell as much as 7.1 percent inHong Kong trading today and Standard Chartered dropped by thesame magnitude, following declines in London yesterday.
Goldman Sachs Group Inc. analysts led by Roy Ramos estimatedpotential credit losses at HSBC related to Dubai World may be$611 million, and $177 million for Standard Chartered, accordingto a research report released today. The impact on both bankswill be “manageable,” the analysts wrote.
Sumitomo Mitsui Financial Group Inc., Japan’s second-largestbank by market value, may be owed at least $225 million by DubaiWorld, according to people familiar with the matter. The lendersaid in a statement it has “exposure” to Dubai World, withoutgiving details. The company said it hasn’t changed its financialforecasts. Smaller rival Mizuho Financial Group Inc. may be owedabout $100 million, the people said.
Sumitomo Mitsui dropped 3.7 percent at the close in Tokyoand Mizuho declined 3.9 percent.
Property Collapse
Dubai borrowed $80 billion in a four-year construction boomthat transformed the sheikhdom into a regional tourism andfinancial hub. It suffered the world’s steepest property slump inthe global recession, with home prices dropping 50 percent fromtheir 2008 peak, according to Deutsche Bank AG.
“We understand the concerns of the market and the creditorsin particular,” Sheikh Ahmed Bin Saeed Al-Maktoum, who chairsthe Supreme Fiscal Committee in charge of apportioning financialsupport to ailing companies, said yesterday in the firststatement from the government since it announced the debtrescheduling. “However, we have had to intervene because of theneed to take decisive action to address its particular debtburden.”
Dubai World had $59.3 billion in liabilities and $99.6billion in assets at the end of 2008, subsidiary NakheelDevelopment Ltd. said in an August statement. Dubai has a total$4.3 billion of government and corporate debt due next month and$4.9 billion in 2010’s first quarter, Deutsche Bank data show.
Fundraising
“The Dubai situation signifies that although the majorcentral banks around the world have stabilized the financialsystem, they can’t make all the excesses simply disappear,” saidArnab Das, London-based head of market research and strategy atRoubini Global Economics. “Of course, Dubai had a lot of theexcesses during the bull market.”
Dubai is one of seven sheikhdoms in the U.A.E. Abu Dhabi,another of the emirates, holds 8 percent of the world’s oilreserves and bought $5 billion of bonds sold by Dubai this weekthrough state-controlled banks. Sheikh Mohammed turned to AbuDhabi’s central bank on Feb. 23 to raise $10 billion selling debt.
Dubai World’s biggest creditors are Abu Dhabi Commercial andDubai-based Emirate NBD PJSC, the United Arab Emirates’ biggestlender by assets, according to two people familiar with thesituation who declined to be identified because the informationisn’t publicly available.
‘Horse Trading’
The debt owed to Abu Dhabi Commercial adds to problem loansfrom Saad Group and Ahmad Hamad Algosaibi & Bros Co., the SaudiArabian family companies that defaulted earlier this year. AbuDhabi Commercial fell 31 percent from Sept. 17 to Nov. 1 afterthe bank said it was owed a total $610 million by the twocompanies. The stock has risen 22 percent this month. It didn’ttrade yesterday during the Eid Al-Adha religious holiday.
“Nobody can know how much exposure these banks have got toDubai unless they choose to tell you themselves,” said SimonMaughan, an analyst at MF Global Securities Ltd. in London. “Idon’t think Dubai will default, however. Once there’s been a bitof horse trading over the weekend, Abu Dhabi will step in andbail out Dubai.”
Royal Bank of Scotland, Britain’s biggest government-controlled bank, slumped 7.8 percent to a seven-month low of 33pence yesterday. Barclays, the U.K.’s second-biggest bank, fell 8percent, the most since June. Lloyds, the U.K.’s biggest mortgagelender, retreated 5.8 percent. London-based HSBC, Europe’sbiggest bank, fell 4.8 percent. Europe’s Dow Jones Stoxx 600Index lost 3.3 percent in London, the biggest drop since April 20.
Ratings Cut
Barclays, Deutsche Bank AG and Citigroup Inc. “stressedprivately” that their “exposure to Dubai World was limited orinsignificant,” the Financial Times reported on its Web site.
The MSCI World Index of 23 developed markets has risen 25percent this year after banks worldwide recorded more than $1.7trillion in writedowns and losses and governments committed about$12 trillion to shore up economies.
Moody’s Investors Service and Standard & Poor’s cut theirratings on Dubai state companies this week, saying they mayconsider Dubai World’s plan to delay debt payments a default.
The cost of protecting Dubai bonds against default hassoared to the fifth highest worldwide, exceeding Iceland’s andLatvia’s, at 530 basis points after the biggest increases sincethe credit-default swaps began trading in January, according toCMA Datavision prices. Default swaps on Dubai World unit DP WorldLtd., the Middle East’s biggest port operator, jumped by arecord to 612 basis points yesterday.
The contracts, which increase as perceptions of creditquality deteriorate, pay the buyer face value in exchange for theunderlying securities or the cash equivalent should a companyfail to adhere to its debt agreements. A basis point is 0.01percentage point and is equivalent to $1,000 a year on a contractprotecting $10 million of debt.
The price of Nakheel’s bonds fell to 70.5 cents on thedollar yesterday from 84 cents Nov. 25 and 110.5 cents a week ago,according to Citigroup Inc. prices on Bloomberg.
To contact the reporter on this story:Vivian Salama in Dubai vsalama@bloomberg.net
Last Updated: November 27, 2009 02:03 ESTSource: Bloomberg
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