Analysis of Dubai Debt Crisis :
The shocking news of the Dubai debt crisis left the Indian Markets in a state of shock today, November 27. The markets were in a state of jittery, following the news. On Wednesday, November 25, the Dubai government had announced it will ask creditors for a standstill on debt worth billions of dollars of two of its flagship firms -- Dubai World, which runs 49 ports around the world, and real estate developer Nakheel.
Dubai World is the conglomerate which spearheaded the emirate`s breakneck growth. It has USD 60 billion in liabilities and will seek a six-month standstill on its debts with all lenders. Nakheel was the builder of the famous three palm-shaped islands off the coast of Dubai.
Dubai had collected USD 80 billion of debt by expanding in banking, real estate and transportation. S&P had placed the ratings of four Dubai-based banks on negative outlook due to their exposure to Dubai World.
European stocks were hit. UK`s benchmark index FTSE 100 fell 2.28 points, or 0.04%, to trade at 5,191.85. French benchmark index CAC 40 lost 4.10 points or 0.07% to trade at 3,676.62. Germany`s benchmark index DAX dipped 1.11 points or 0.02% to trade at 5,614.07. (4.20 pm)
Asian markets also took a severe beating on concerns about Dubai`s debt rescheduling. Asian stocks slumped, dragging the MSCI Asia Pacific Index down the most in eight months, on concern over losses stemming from Dubai`s attempt to reschedule its debt and as the yen strengthened against the dollar.
Japanese benchmark index Nikkei 225 fell 301.72 points, or 3.22%, to end at 9,081.52. Hong Kong`s Hang Seng is declined 1,075.91 points, or 4.84%, to end at 21,134.50. China`s Shanghai Composite decreased 74.72 points, or 2.36 to end at 3,096.26.
The impact was also felt in India, on Dalal Street, with the Bombay Stock Exchange 30-share benchmark index, Sensex selling the day with a loss of 222.92 points, or 1.32% at 16,632.01 after touching a high of 16,718.80 and a low of 16,210.44. On the other hand, National Stock Exchange, the broad-based NSE Nifty fell 63.80 points, or 1.27% at 4,941.75 after hitting a high of 5,005.05 and a low of 4,806.70. .
In an exclusive talk with Myiris.com, Alex Mathews, head of research, Geojit Financial Services, commenting on the impact of Dubai debacle on Indian markets, said, ``The news on Dubai`s debt crisis impacted the world markets, including India which was trading in the overbought zone since yesterday. The weak trend may continue for some more days, until we get clarity on the impact of this crisis on our companies and individuals. ``
``A lot of Indians, especially Keralites, who are working in Dubai, can face severe job problems which can negatively impact the NRI remittance. Some of the private and public companies which have exposure in Dubai may be severely affected and their cash-flows especially those of firms which are directly linked with Realty, capital goods and export houses including Gems and Jewellery. It is too early to comment on the quantum of impact on Indian companies but it can be minimum comparing with other global financial institutions,`` he added.
``At least for the time being, the cash inflows to Dubai will be stagnated until the Dubai government addresses the financial crisis.`` Mathews opined.
Ashok Jainani, vice president Head Research, Khandwala Securities, talking about the Dubai concerns, told Myiris.com, ``The stock market reaction to debt rescheduling sought by Dubai World does not seem warranted. Global market capitalization loss is many times over the total debt that is being sought to be rescheduled. We do not believe there is any default cascading to other sectors of the Indian economy as is being made out by mainline media.``.
``Market was looking for a reason to pause and rest. This incidence has just provided that. We suggest adding long positions in growth stocks in this panic situation,`` he added.
Speaking to Myiris.com, Krishnan Ramachandran, CEO, Barjeel Geojit, opining on the Dubai Crisis, said,`` `The Sun Never Sets on Dubai World` is the corporate caption of Dubai World; unfortunately the sun seems to have finally set on Dubai World`s financial affairs. The proposal by the Dubai World, a state controlled enterprise, to restructure its debt portfolio has taken the markets by surprise and is being viewed as a prospective quasi-sovereign default. ``
He said, ``The timing of the announcement added to the uncertainty, it was done just before the long Eid holidays. Both S&P and Moody`s have downgraded a number of Dubai entities and some of them to near junk status. It appears that debt restricting will go through, at least partially with the GCC based banks, but one has to wait and watch as to how the international banks will respond to this offer.``
Giving his outlook on the market following the above, he said, ``The local markets are expected to react negatively once they open on Monday and the global markets have already reflected their concerns with the corrections seen, especially in the CDS and bond prices of Dubai based entities, Nakheel in particular. The general expectation is that the Government of UAE will come out with a strong intent / statement of support for Dubai and its related business, which can then arrest the possible sell off that one can expect before the markets open on Monday.``
However, the government today put up a brave face stating financial concerns in Dubai would not impact the Indian economy and the country`s real estate sector.
``I don`t think,`` said Commerce and Industry Minister Anand Sharma when asked by mediamen, whether the confidence erosion in Dubai would have ripple effect in India.
Sharma said the Indian economy is large and ``I don`t think developments in real estate sector in Dubai are going to impact it...Besides, the Indian real estate is doing well,`` he said
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