Sovereign wealth fund Dubai World, which again is bound to lead to tensions in financial markets, will propose plans to restructure its debts. The intention of the Fund are to seek warrants for conversion of debt to 22 billion dollars. One option is for every dollar debt fund to return 60 cents, transmit Market Watch, citing sources from the country. This will happen after a period of seven years and within this period will be paid principal and interest. Only interest would be paid in the last year, and the government of Dubai will be the guarantor. The second option, which is expected to be proposed, provides for obligations to creditors to be made in full, but by assets and shares of the division of the Dubai World Nakheel. The company specializes in construction and is the creator of ambitious projects such as palm and The World. “We think that banks would probably accept the first proposal,” it said in a message of Credit Suisse. According to financial institution creditors are expecting such a development and recovery of 50-60% of their loans to the fund. While it seems unattractive for banks that option is better than bankruptcy, indicated by Credit Suisse. The reason for this is that bankruptcy financial institutions will have to classify 100% of its exposure to the fund as a bad loan, as it happens around 40% of the position. From an accounting point of view it is more profitable, think of the bank.
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Which balloon will burst after Dubai? How the threat of credit echoed Arab Emirates? Is it an isolated phenomenon or a debt crisis heralded a new wave of bankruptcies? These are questions that are trying to find solutions to two analysts from New York Times. So far, investors do not succumb to panic, but the big banks have granted loans to fund state the investment – Dubai World and its subsidiary development company Nakheel anxiously assessing their potential vulnerability to a possible chain reaction of bankruptcies if Emirates not fulfill their promises to help. Does not happen, which was declared by the common central bank of the United Arab Emirates (UAE) to give money to the fund and the construction company, not to fall into a liquidity crisis, with huge debts may prove to be not only individual corporations and banks, but governments and objectives. All creditors from the Baltic to the Mediterranean looking for money, although theirs is the blame for the unprecedented credit boom. Already are piling up deficits in the budgets of not a few countries that drew money for anti-crisis programs. Government debt is growing even in a country like Germany, which has long been a bastion of strict fiscal policy. The external debt of Bulgaria, Hungary and the Baltic countries grew as part of GDP, say the authors of the New York Times. However, they believe that it can be expected similar to the Dubai situation in other countries of the world. But that does not mean that nations will go to save individual companies from bankruptcy.
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After a painful downturn last week, most stock indexes in Asia and the Pacific region began this week with significant increases. Optimism prevailed among investors after the United Arab Emirates (UAE) said they would support their banks, which fell into difficulty because of the insolvency of the investment fund Dubai World. Most local currencies rose, and risk premiums on corporate bonds fell. The regional index MSCI Asia Pacific, which monitors the securities markets in ten Asian countries plus Australia and New Zealand, rose 3.5 percent to 117.85 points. This is the strongest measure of stock market growth since the beginning of April this year. Today, the UAE central bank said it stands behind the credit companies in the seven Arab Emirates, and the government of China confirmed that it will not hurry to withdraw its measures to support the economy. The financial companies in the composition of the MSCI Asia Pacific contributed most to the strong increase of the index today after last week suffered the most along the news about the financial problems of Dubai. The main stock index fell in Dubai with a record 7.2 percent last year, and the Abu Dhabi stock slid more than 8%. Today was the first business day of the exchanges in the UAE, which closed late last week because of holidays in the Arab world. The Japanese Nikkei 225 rose by 2.9 percent to 9345.6 points. Shares of exporting companies rose, although the rate of the yen against the dollar increased by 0.7 percent today. This increases the cost of Japanese goods companies abroad. In India, the BSE Sensex 30 rose 1.7 percent to 914.1 points to 16 after the country’s economy grew more than expected by 7.9 percent for the period July-September compared to last year.
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The Dubai’s credit problems are “trailing effect” from the global credit crisis shows that governments should be more active actions to prevent such a new crisis. Such is the opinion of Mohammed El-Erian, chief executive of one of the most influential investment funds in the world – PIMCO. El-Erian points out that the center of the policy of the United States and other countries should stand in job creation and change of fiscal policy. Only thus could the world to return to growth. “The global economy should achieve higher growth, higher employment,” said El-Erian to CNBC. “If she does so, then we will have to undergo serious balanced economy, multi-redistribution,” said the specialist. According to El-Erian irresponsible fiscal policy, which is used in high leverage and low collateral attacks are caused by economies such as Dubai.
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The main stock indexes in the United States did not make an exception and also went to negative territory in early session today after holiday similar to those in Asia and Europe. Among losers ran those companies from the financial, energy and extractive industries. Reason for this were concerns about the inability of the state’s largest investment holding company of Dubai to pay its obligations. The way in which world financial markets reacted to news about the financial difficulties of the emirate of Dubai, showed how market participants remain sensitive to any bad news from the financial sector. Today’s trading will be shortened by half and therefore the liquidity is expected to remain low until the end of the trading session, which will end at 20:00 pm local time. The index of the 30 most liquid companies large and Dow Jones IA decreases by 1.2% to 10 341.6 points an hour and a half after the beginning of the session. On Wednesday, the stock measure reached its highest peak in the last 13 months of good data on the housing market and the labor market. A broader index S & P 500 also lost 1.2 percent to 1 097.3 points, after the very beginning of the session are reduced by 2.5%. The index, which combines all companies in exchange Nasdaq – Nasdaq Composite, retreated 1% to 2 153.5 points.
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The price of oil dropped to its lowest level in over six weeks since the news that the government investment fund Dubai World in Dubai has requested postponement of payments on obligations, which exceed $ 59 billion. The decline in the value of the raw material was also supported by increased oil stocks in the U.S., indicating weak demand from consumers and industry. U.S. light crude for January delivery fell by $ 3.44, or 4.4 percent to 74.52 dollars per barrel in late Asian trade. For the last oil is sad at this level on October 14. Since the beginning of the week the raw material decreased from 2.8%. The dollar, which was one of the few winners from stall stock prices of raw materials and upload their values to levels of 1.4920 EUR / USD against 1.5019 EUR / USD yesterday. Rally index MSCI Asia Pacific, which monitors presentation of shares in the Asia-Pacific region fell by 3% to 114.08 points in Tokyo. This was his most potent decrease from August. Quotes of the indexes S & P and Dow Jones Euro STOXX 50 is accordingly decreased by 3.2% and 1.7%. Main DAX index of the Frankfurt Stock Exchange fell by 0.60 percent this morning after yesterday sank more than 3% Index CAC 40 of the Paris Stock Exchange lost 1.79 percent targets yesterday after a decline of 3.41% London FTSE-100 fell by 0.80%
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Expanding markets in Central and Eastern Europe will suffer relatively good shocks, created after the credit crunch in Dubai, says an analysis of the Italian UniCredit. The reason for this is that banks in the region are not directly affected, as in Western Europe. Another analysis of Credit Suisse predicts that financial institutions in Western Europe stand to lose nearly 13 billion dollars in the bankruptcy of the Dubai government investment fund Dubai World. According to UniCredit Central and Eastern Europe for short will be negatively affected by debt problems of Dubai as there is an increase in so-called Risk Aversion or willingness to invest in less risky assets. The bank argued that the presence of the IMF in some countries in the region has some stability. In conclusion the bank determines that Eastern Europe will be affected, but only in the short term, not long, and is not expected to have a serious debt problem in the region. Regarded as one of the most brilliant financial centers in the world until a year ago, Dubai is now among the most uncreditworthy countries on the planet. Again according to Credit Suisse analysis of the emirate to the obligations of European banks are more than 13 billion euros. Spark of hope given the solidarity shown by Abu Dhabi. Two banks of the emirate already unlocked $ 5 billion needed for the most urgent needs of Dubai, cited by BNR correspondent in Beirut.
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The price of oil dropped to its lowest level for the past six months. Reason for this became news about Dubai’s plans to restructure its public investment fund. Currently announced that the Fund suspended all payments on its obligations for a period of six months, and rumors say it could extend to bankruptcy. This is a strong negative impact on the stock exchanges in Europe, which registered a sharp drop yesterday. The reason is that some analysis show that European banks had exposure of about $ 40 billion to the fund. Learn more about the fund, which collapsed yesterday exchanges in Asia and Europe. All this reflect negatively on the price of oil. Black gold moved with a fall of 3.4 percent to 75.29 dollars per barrel last night, which is the lowest level to date of 15 October. So oil is going to record weekly retreat from 1,9 per cent. Yesterday the New York Stock Exchange remained closed for Thanksgiving. Today, even the stock exchange session will be shortened, as trade will be up to about 8 hours CET. Then you’ll end today’s session of the stock exchange in the United States.
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