Dubai banks feeling the heat
More than two years on from Dubai World, and Dubai is still struggling to sort out its debt.
Investors were shocked when government-owned Dubai World declared a payment standstill on its debts in Nov 2009 — a brutal tarnishing of the ”sovereign halo”, which investors thought shone even on those borrowers whose debt did not have a solid sovereign guarantee.
A number of debt restructurings have taken place since then, including most recently for $2.5 billion in debt from Dubai International Capital (DIC). But banks are looking vulnerable.
Gus Chehayeb, analyst at Exotix in Dubai, says two-thirds of Dubai’s bank debt restructuring has been completed following DIC, but there is still $12.2 billion in bank debt under negotiation.
Chehayeb says:
It has not paid to be a banker in Dubai. To date, bankers have shouldered ALL of Dubai Inc’s debt restructuring costs, while bondholders have remained. completely untouched.
But the approach has helped Dubai to recover some of its glow:
Zeitgeist check
Some more bits and bobs to capture the current mood among investors.
– So far, 2009 is worse than 2008 for stock investors. MSCI‘s main world index is down around 17 percent in January and February. A year ago, it had lost around 8 percent.
– Eastern and central Europe are the new worries because of bank exposure to troubled economies. ”The travails in the east, like the vampires of folklore, are sucking the lifeblood from European markets and investor sentiment,” State Street suggests.
– Cross-border flows into the euro zone hit record lows in February, the same firm says.
– Denmark and Sweden join the gloomy gang. Year-on-year Swedish GDP lost 4.9 percent in Q4 2008 and Denmark’s was down 3.9 percent.
– We have just had the worst month ever for global corporate earnings revisions, according to Societe Generale number maestro Andrew Lapthorne. “Earnings estimates for 2009 saw a 14 percent cut last month, a rate of downgrades twice that seen during the worst moments of the early 1990s recession,” he says.
Greenland – new and poor country?
Greenland, an arctic island with a population of 57,000, voted for self-governance from Denmark in a referendum on Tuesday. The “Yes” camp won an overwhelming 75 percent of the vote.
Shrimp and halibut fishing and tourism form the backbone of the economy but the island is rich in minerals and its waters may hold vast hydrocarbon reserves.
The resources setting is very much like one of Iceland, although Greenland – made up mostly of Inuit people who live in small, isolated villages – does not have a huge banking sector. (Neither does Iceland these days, some might argue.)
In fact the country does not have roads between towns either. Travel is only possible by boats or planes, weather permitting.
“The conceit is that Greenland would be a commodity economy. However, commodity based economies, as we are seeing, are prone to booms and busts,” writes Marc Chandler, FX strategist at U.S. bank Brown Brothers Harriman.
An eventual independent Greenland is likely to come at a cost. Greenland receives yearly subsidies of 3.2 billion Danish crowns ($557.6 million) from Copenhagen, about a third of its gross domestic product.
