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Thursday, November 26, 2009

Dubai Default

by Calculated Risk on 11/26/2009 11:01:00 AM

No one saw this coming ...

From Bloomberg: Dubai Debt Delay Rattles Confidence in Gulf Borrowers

Dubai is shaking investor confidence across the Persian Gulf after its proposal to delay debt payments risked triggering the biggest sovereign default since Argentina in 2001.
Moody’s Investors Service and Standard & Poor’s cut the ratings on state companies yesterday, saying they may consider state-controlled Dubai World’s plan to delay debt payments a default. The sheikhdom, ruled by Sheikh Mohammed Bin Rashid Al Maktoum, borrowed $80 billion in a four-year construction boom ...
And a few articles from the WSJ: Dubai Starts to Untangle Dubai World Fallout

And European Banks Seen Exposed To Dubai World
Most banks on Thursday said their exposure to Dubai and Dubai World is small or declined to comment, but Credit Suisse analysts estimate European banks have about $40 billion in exposure to debt issued by various Dubai city-state entities, including Dubai World.
And from December 2008: Citi Voices Upbeat View on Dubai (ht jb)
With questions about Dubai's looming debt obligations swirling, Citigroup Inc. said it had raised $8 billion for the Persian Gulf city-state over the course of the past year and still had a positive outlook on its economy.

Citigroup Chairman Win Bischoff was quoted in the bank's statement Monday as saying Citigroup continues to see Dubai as among its "most significant markets."
When there are bad loans to be made, apparently Citi never sleeps.

UPDATES: Brad DeLong suggests it might be Time to Reread the History of Austria's Creditanstalt in 1931...
Interesting time. In Europe, the Creditanstalt's bankruptcy and what followed was what turned the recession into the European Great Depression...
And DeLong excerpts from a Financial Times article by Roula Khalaf: The emirate has a lot of explaining to do

And from Izabella Kaminska at the FT Alphaville: Barclays Capital ‘change their view’ on Dubai
My, my, what a difference a few weeks make.

Earlier this month — when all still seemed relatively well in the UAE emirate of Dubai — Barclays Capital was among those touting Dubai-related debt as a decent investment for clients. The bank even confidently predicted the repayment of the now infamous Nakheel sukuk.

In fact on November 4 — the day Moody’s slashed its ratings on five Dubai government related entities — BarCap analysts wrote:
We expect several developments to act as positive catalysts for Dubai’s sovereign spreads. First, the likely repayment of the Nakheel sukuk in December. Second, Dubai’s ability to raise the second USD10bn tranche with the support of Abu Dhabi. Third, a successful conclusion of the merger between Emaar and Dubai Holding, as well as a solution allowing mortgage providers Amlak and Tamweel to resume lending.

On that basis, we recommend a long position in Dubai sovereign credit and see today’s negative price actions as an opportunity to buy.
There is much more at the link.