Dubai Shares Plunge, Abu Dhabi Index Slides Most in Eight Years
Nov. 30 (Bloomberg) -- Dubai shares tumbled and Abu Dhabi’sstock index fell the most in at least eight years on the firsttrading day since the government announced state-run DubaiWorld, with $59 billion of liabilities, may delay debt payments.
The Dubai Financial Market General Index dropped 7.3percent to 1,940.36, the biggest decline since October 2008. AbuDhabi’s ADX Index tumbled 8.3 percent, the most since Bloombergbegan compiling the data in 2001.
“Investors are not separating between Dubai and AbuDhabi,” said Yazan Abdeen, a fund manager at ING InvestmentManagement Ltd. in Dubai. “Country risk does not separatebetween cities.”
The plunge in the emirates’ stocks follows the biggestdeclines in Asian shares in three months last week and Europe’sworst rout since April amid investor concern the proposal forDubai World to delay debt payments risks triggering the biggestsovereign default since Argentina in 2001.
The United Arab Emirates central bank said it “standsbehind” the country’s local and foreign banks as they face theprospect of losses from Dubai World. Banks will be able toborrow money from the regulator for half a percentage pointabove the three-month local benchmark interest rate, the AbuDhabi-based Central Bank of the U.A.E. said in an e-mailedstatement yesterday.
The statement helped push developing-nation stocks highertoday, with the MSCI Emerging Markets Index climbing 1.2percent, its biggest gain in two weeks. The dollar retreated andcommodities rose.
Default Swaps
Dubai credit-default swaps tightened for the first time ina week, declining 72 basis points to 574 basis points, accordingto prices from CMA Datavision. Abu Dhabi default swaps, whichfall as the perception of credit quality improves, tightened 29basis points to 146 and contracts linked to DP World Ltd.dropped 101 basis points to 642.
Emaar Properties PJSC, the biggest property developer inthe U.A.E, tumbled the most in five months, losing 9.9 percentto 3.75 dirhams. Its ratings were cut by Standard & Poor’sRatings Services and Moody’s Investors Service Inc. last week.
National Bank of Abu Dhabi PJSC slipped 9.7 percent, itsbiggest one day drop in five years, after the U.A.E.’s second-biggest lender said it’s owed $345 million by the Dubai Worldgroup.
DP World fell by the maximum limit allowed by Nasdaq Dubairegulations, declining almost 15 percent to 37 cents, set forits biggest one-day loss since February. Dubai World is theparent company of DP World, the Middle East’s biggest portoperator. The company said on Nov. 26 it isn’t included in therestructuring process announced for Dubai World.
‘Ugly Few Days’
“Unless we get a statement from the government clarifyingthings, we’re going to see an ugly few days,” said HaissamArabi, head of the Gulfmena Alternative Investments hedge fundin Dubai.
Dubai World, whose majority stakeholder is the emirate’sruler, Sheikh Mohammed Bin RashidAl Maktoum, borrowed from morethan 70 lenders to buy assets ranging from stakes in Las Vegascasino company MGM Mirage to London-based Standard Chartered Plcthrough Istithmar PJSC.
Dubai’s government said last week that Dubai World willseek a “standstill” agreement to delay repayment of its debt,including $3.52 billion of bonds due Dec. 14 from its propertyunit Nakheel PJSC. The announcement came less than two hoursafter Abu Dhabi, the capital and wealthiest emirate in theU.A.E., bought $5 billion of Dubai bonds as part of a $20billion support fund to help reorganize state companies. Marketswere closed from Nov. 26 to 29.
Bond Suspension
Nakheel asked Nasdaq Dubai today to suspend its bonds untilit provides further information to the market.
“Investors are angry,” said Eric Swats, a partner atRasmala Investment Holdings in Dubai. “Investors will becautious to put money in this region and will require a greaterrisk premium.”
U.A.E. stock markets are open for two days before closingfor another four-day holiday weekend commemorating 38 yearssince seven Gulf sheikhdoms formed the United Arab Emirates.
“Sentiment is really appalling,” said Mark Friedenthal, afund manager at Abu Dhabi Commercial Bank. “Foreign investorswill be dumping for a few days and the risk premium for thewhole market has spiked.”
The Dubai Financial Market Index has climbed 18 percentthis year, trailing the 68 percent advance in the MSCI EmergingMarkets Index. Dubai authorities changed the regulated movementof most stocks last year to 10 percent from a maximum of 15percent down in a bid to limit losses in a single day after thecredit crunch led to declines in equity markets across theglobe.
Islamic Holiday
Markets in Saudi Arabia, Qatar, Kuwait, Oman and Bahrainwere closed today for the Eid al-Adha holiday.
The cost of protecting against Dubai’s government renegingon obligations doubled last week to as much as $647,000 a yearto insure $10 million of Dubai debt. That’s still less than theprice of $1 million, or 1,000 basis points, associated withborrowers considered distressed. The contracts pay the buyerface value in exchange for the underlying securities or the cashequivalent should a company fail to adhere to debt agreements.
To contact the reporter on this story:Vivian Salama in Dubai vsalama@bloomberg.net
Last Updated: November 30, 2009 06:23 ESTSource: Bloomberg
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