deception
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http://www.theglobeandmail.com/repo...ets-tremble-on-dubai-troubles/article1379690/
The fallout from Dubai's debt crisis rippled across the globe Friday, raising concerns of a renewed wave of financial turmoil and showing how fragile the world economic recovery remains.
As world stock, commodity and currency markets went into a tailspin, the possible spillover effects from Dubai surfaced from London to South Korea, with banks big and small drawing concern for any losses they could suffer as a result of their exposure to the massively debt-laden emirate.
A year after the global downturn derailed Dubai's explosive growth, the emirate revealed this week it was asking for a six-month reprieve on paying its bills. Its main investment arm, Dubai World, said it would ask creditors for a “standstill” on paying back its $60-billion (U.S.) debt until at least May.
Following a rout in Europe, Asia's stock markets tumbled Friday while the U.S. dollar hit a fresh 14-year low against the yen. Crude oil at one point fell more than 6 per cent to $72.39 barrel.
Banks Could Be Hit Hardest
With Dubai World hard pressed to pay its bills, banks could take the biggest hit, analysts said.
Heavyweight lenders HSBC Holdings and Standard Chartered could face losses of $611-million and $177-million respectively, according to early estimates from analysts at Goldman Sachs. Both have substantial Middle East operations.
Japan's Sumitomo Mitsui Financial Group, the country's No. 3 bank, could be exposed to Dubai World's main real estate arm to the tune of several hundred million dollars, according to a person familiar with the matter.
In South Korea, where the stock market plunged almost 5 per cent Friday, the government estimated that the country's financial institutions have just $88-million in exposure to the Dubai.
Construction firms in Japan, South Korea and Australia behind Dubai's recent development boom, which gave rise to ambitious and eye-catching projects like the Gulf's palm-shaped island, also might be on the hook.
While most have the capacity to absorb any losses, it could lead banks to scale back their lending. That could make it more difficult for companies to borrow money and weigh down a world economy still emerging from the throes of its deepest recession in decades, analysts said.
Particularly unnerving for investors was uncertainty over which companies were exposed and how much money they might actually lose.
“It triggered investors' sensitive nerves,” said Cai Junyi, an analyst for Shanghai Securities. “The world is watching whether that will have any substantial impact ... Dubai World is just like a small window that might reflect another financial tsunami.”
HSBC declined to comment. Calls to Standard Chartered representatives were not returned.
Debt “Carefully Planned”
A top Dubai finance official said the emirate fully expected fallout from its debt problems and assured foreign creditors that Dubai World's request to postpone payment on some of its $60-billion in debt was “carefully planned.”
The comments by Sheikh Ahmed bin Saeed Al-Maktoum, the chairman of Dubai's Supreme Fiscal Committee, came as world markets reacted in shock to what some analysts indicated amounted to a default Dubai World, the city-state's key engine of growth with interests ranging from ports to real estate.
Mr. Ahmed said the emirate's leadership thought long and hard, weighing creditors' interests, before announcing they were seeking a “standstill” on Dubai World's debt until at least May.
“Our intervention in Dubai World was carefully planned,” he said in the statement released late Thursday. “The government is spearheading the restructuring of this commercial operation in the full knowledge of how the markets would react.”
The Dubai government, in a brief statement issued Wednesday — on the eve of a three-day Islamic feast — said it would request the delay in Dubai World's debts, as well as those of real estate arm Nakheel, which has a roughly $3.5 billion Islamic bond coming due in December.
“We understand the concerns of the market and the creditors in particular,” Mr. Ahmed also said.
He called the Dubai World's debt freeze request a “sensible business decision” and said Dubai's leadership had to intervene when it did “because of the need to take decisive action to address its particular debt burden.”
A year after the global downturn derailed Dubai's explosive growth, the semiautonomous city-state known for its man-made islands, the world's tallest tower and indoor ski slope has been grappling with its debt load, issuing bonds that have been bought up by both the United Arab Emirates' central bank and, most recently, two banks majority owned by neighbouring Abu Dhabi, the oil-rich emirate home to the UAE's federal government.
The announcement of the debt delay request appears to have largely eclipsed any assurances by the emirate's ruler, Sheikh Mohammed bin Rashid Al-Maktoum, who had continually dismissed concerns over the city-state's liquidity.
Sheikh Ahmed, who is also a member of Dubai's ruling family and serves as the chairman of the Emirates airline, said claims that Dubai overreached during the good times were unjustified.
Mr. Ahmed said the unprecedented growth over the past decade “helped lay the foundation for what is now a broad-based sustainable economy.”
“The economic fundamentals, such as our highly developed infrastructure ...will ensure Dubai remains an attractive regional market,” Mr. Ahmed said.
