The tumble in bonds of Dubai’s state-controlled companies to record lows signals growing concern more borrowers will fall behind on debt payments as Dubai World seeks to restructure $26 billion of obligations.
“We are concerned that it’s just not Dubai World that has issues,” said Oliver Bell, the head of Middle East and Africa investment at Pictet Asset Management in London, which has $120 billion under management. “The health of other government- related entities is in question.”
Dubai World property unit Nakheel PJSC’s $3.52 billion of Islamic bonds due Dec. 14 dropped more than 10 percent yesterday to 46.5 cents on the dollar, according to Citigroup Inc. Bonds sold by DIFC Investments and Dubai Holdings Commercial sank as low as 44.5 cents on the dollar after Moody’s Investors Service cut the credit ratings of six state- run companies. A jump in the cost of DP World Ltd.’s credit- default swaps implied a 33 percent risk that the port operator will renege on debt.
Dubai World, a government holding company that owns 80 percent of DP World, said last week it’s in talks with banks to reorganize debt after requesting a creditor “standstill” on Nov. 25. Debt restructurings may almost double to $46.7 billion in the “near term” as more of Dubai’s businesses need help paying debt, according to Morgan Stanley.
“The ownership structure in Dubai is like spaghetti,” Pictet’s Bell said. “We’re in the process of sorting that spaghetti out.”
Nakheel Bonds
Holders of Nakheel’s bonds are scheduled to take part in a conference call today with trustee Deutsche Bank AG, said two people invited to participate who declined to be identified because the discussion is private.
Nakheel had a first-half loss of 13.4 billion dirhams ($3.65 billion) as revenue fell and it wrote down the value of land and property, according to a document obtained by Bloomberg News after the Dubai market closed. Dubai’s DFM General Index plunged 6.1 percent yesterday to 1,638.05, erasing almost all of this year’s gains.
While Dubai’s government owns 100 percent of Dubai World, it hasn’t guaranteed the company’s debt and creditors must help it restructure, Abdulrahman Al Saleh, director general of Dubai’s Department of Finance, said Nov. 30.
Dubai Holding LLC is most at risk of being “next in line” in restructuring its debt, Barclays Plc said.
‘Orderly Restructuring’
“The market is pricing in a swift and orderly restructuring with no lasting effect on Dubai Inc.,” Barclays said in a research note yesterday. “Based on our recent experience, we would argue that there is little chance of this materializing, and at this point, risk is skewed to the downside.”
Dubai companies’ ability to tap debt markets will be “severely impaired,” Barclays said.
Dubai World’s Istithmar unit lost control of the W New York Union Square hotel in a foreclosure auction after investing in the property near the top of the real estate market. LEM, an affiliate of Lubert-Adler Real Estate Funds, won an auction for the mezzanine debt on the luxury Manhattan hotel, which was purchased by Istithmar in 2006 for $285 million. LEM bid $2 million for the debt.
Dubai Group LLC, an investment company owned by the emirate’s ruler, Sheikh Mohammed Bin Rashid al-Maktoum, is seeking to sell a $91 million stake in EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank, cutting its stake to less than 20 percent from 25 percent, two people familiar with the sale said yesterday.
$2 Billion Acceleration
Dubai Financial, a unit of Dubai Group, is offering about 19.1 million shares at 25 Egyptian pounds ($4.60) to 26 pounds each, said one of the people, who declined to be identified before a formal announcement. That’s a discount of as much as 10.8 percent to yesterday’s closing price.
EFG shares rose 0.8 percent to 28.03 pounds in Cairo trading yesterday and are up 61 percent this year. A spokeswoman for Dubai Group didn’t return calls to her mobile phone. EFG Chief Executive Officer Yasser El Mallawany wasn’t available to comment.
Moody’s cut Dubai Electricity & Water Authority, known as Dewa, yesterday to Ba2, two levels below investment grade, from Baa2. Moody’s said Dewa was downgraded in part because an accelerated payment clause was triggered on $2 billion of debt sold through its Cayman Islands-based Thor Asset Purchase Ltd.
‘Liquidity Pressure’
The acceleration creates the “potential for liquidity pressure,” Moody’s said. The Financial Times reported that Fitch Ratings’s lowering of Thor Asset Purchase to BBB-, the lowest investment-grade level, on Nov. 30 triggered the clause.
DP World, the Middle East’s biggest port operator, was cut two levels by Moody’s yesterday to Ba1, one step below investment grade, from Baa2. Emaar Properties PJSC, the United Arab Emirates’ biggest developer, was lowered two levels to B1 and business park operator Jebel Ali Free Zone was pushed down three levels to B1.
“No meaningful government support should be assumed for any entity that is not directly part of or formally guaranteed by the government,” Moody’s analysts Philipp Lotter and David Staples wrote yesterday in an e-mailed statement.
A spokesperson for Emaar wasn’t available to comment when contacted after business hours. A Dubai World spokesman declined to comment on behalf of Dubai Holding and DP World. Spokespeople for Dubai International Financial Centre, DIFC Investment’s parent, didn’t answer calls to mobile phones after business hours.
DP World
Dubai Holding, Borse Dubai Ltd. and Dubai Sukuk Center Ltd. may join Dubai World in restructuring debt, Morgan Stanley analysts Mohamed W. Jaber and Paolo Batori wrote in a report Dec. 7, in which they outlined three scenarios for debt re- workings. The first includes only Dubai World’s $26 billion of debt. The second climbs to $34.8 billion by adding debt from Dubai Holding, while the third totals $46.7 billion by including obligations from other companies.
Credit-default swaps on DP World rose 34.5 basis points to 592.5, implying a 33 percent chance of default over five years with an assumed recovery rate of 25 percent, according to CMA Datavision prices. That’s an increase from a 29 percent probability Dec. 7, and a 21 percent risk of default on Nov. 19.
Sukuk
Credit-default swaps on Dubai’s government debt jumped 42 basis points yesterday to a week-high 542, according to CMA Datavision prices at 5 p.m. in London. That price implies a 31 percent probability of Dubai default, up from 29 percent on Dec. 7. The swaps traded as high as 632 basis points Nov. 27, implying a 36 percent chance of default, CMA prices show.
The contracts, which fall as perceptions of credit quality improve, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point is 0.01 percentage point and is equivalent to $1,000 a year on a contract protecting $10 million of debt.
A $1.25 billion, 2012 Islamic bond from DIFC Investments, the company controlled by state-owned Dubai International Financial Center, dropped almost 9 percent to 51.5 cents on the dollar, the lowest price since Bloomberg began tracking the data in November 2008. The company’s rating was cut four levels by Moody’s to B2, five levels below investment grade.
Islamic bonds, known as sukuk, are governed by Shariah laws barring investors from profiting from the exchange of money.
Dubai Holding Commercial Operations’ floating-rate, dollar- denominated bond due 2012 slumped 16 percent to a record-low 44.5 cents on the dollar after trading as high as 86 cents in October. The unit of Dubai Holding, owned by Sheikh Mohammed, was lowered to four levels below investment grade at B1 by Moody’s.
“We are concerned that it’s just not Dubai World that has issues,” said Oliver Bell, the head of Middle East and Africa investment at Pictet Asset Management in London, which has $120 billion under management. “The health of other government- related entities is in question.”
Dubai World property unit Nakheel PJSC’s $3.52 billion of Islamic bonds due Dec. 14 dropped more than 10 percent yesterday to 46.5 cents on the dollar, according to Citigroup Inc. Bonds sold by DIFC Investments and Dubai Holdings Commercial sank as low as 44.5 cents on the dollar after Moody’s Investors Service cut the credit ratings of six state- run companies. A jump in the cost of DP World Ltd.’s credit- default swaps implied a 33 percent risk that the port operator will renege on debt.
Dubai World, a government holding company that owns 80 percent of DP World, said last week it’s in talks with banks to reorganize debt after requesting a creditor “standstill” on Nov. 25. Debt restructurings may almost double to $46.7 billion in the “near term” as more of Dubai’s businesses need help paying debt, according to Morgan Stanley.
“The ownership structure in Dubai is like spaghetti,” Pictet’s Bell said. “We’re in the process of sorting that spaghetti out.”
Nakheel Bonds
Holders of Nakheel’s bonds are scheduled to take part in a conference call today with trustee Deutsche Bank AG, said two people invited to participate who declined to be identified because the discussion is private.
Nakheel had a first-half loss of 13.4 billion dirhams ($3.65 billion) as revenue fell and it wrote down the value of land and property, according to a document obtained by Bloomberg News after the Dubai market closed. Dubai’s DFM General Index plunged 6.1 percent yesterday to 1,638.05, erasing almost all of this year’s gains.
While Dubai’s government owns 100 percent of Dubai World, it hasn’t guaranteed the company’s debt and creditors must help it restructure, Abdulrahman Al Saleh, director general of Dubai’s Department of Finance, said Nov. 30.
Dubai Holding LLC is most at risk of being “next in line” in restructuring its debt, Barclays Plc said.
‘Orderly Restructuring’
“The market is pricing in a swift and orderly restructuring with no lasting effect on Dubai Inc.,” Barclays said in a research note yesterday. “Based on our recent experience, we would argue that there is little chance of this materializing, and at this point, risk is skewed to the downside.”
Dubai companies’ ability to tap debt markets will be “severely impaired,” Barclays said.
Dubai World’s Istithmar unit lost control of the W New York Union Square hotel in a foreclosure auction after investing in the property near the top of the real estate market. LEM, an affiliate of Lubert-Adler Real Estate Funds, won an auction for the mezzanine debt on the luxury Manhattan hotel, which was purchased by Istithmar in 2006 for $285 million. LEM bid $2 million for the debt.
Dubai Group LLC, an investment company owned by the emirate’s ruler, Sheikh Mohammed Bin Rashid al-Maktoum, is seeking to sell a $91 million stake in EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank, cutting its stake to less than 20 percent from 25 percent, two people familiar with the sale said yesterday.
$2 Billion Acceleration
Dubai Financial, a unit of Dubai Group, is offering about 19.1 million shares at 25 Egyptian pounds ($4.60) to 26 pounds each, said one of the people, who declined to be identified before a formal announcement. That’s a discount of as much as 10.8 percent to yesterday’s closing price.
EFG shares rose 0.8 percent to 28.03 pounds in Cairo trading yesterday and are up 61 percent this year. A spokeswoman for Dubai Group didn’t return calls to her mobile phone. EFG Chief Executive Officer Yasser El Mallawany wasn’t available to comment.
Moody’s cut Dubai Electricity & Water Authority, known as Dewa, yesterday to Ba2, two levels below investment grade, from Baa2. Moody’s said Dewa was downgraded in part because an accelerated payment clause was triggered on $2 billion of debt sold through its Cayman Islands-based Thor Asset Purchase Ltd.
‘Liquidity Pressure’
The acceleration creates the “potential for liquidity pressure,” Moody’s said. The Financial Times reported that Fitch Ratings’s lowering of Thor Asset Purchase to BBB-, the lowest investment-grade level, on Nov. 30 triggered the clause.
DP World, the Middle East’s biggest port operator, was cut two levels by Moody’s yesterday to Ba1, one step below investment grade, from Baa2. Emaar Properties PJSC, the United Arab Emirates’ biggest developer, was lowered two levels to B1 and business park operator Jebel Ali Free Zone was pushed down three levels to B1.
“No meaningful government support should be assumed for any entity that is not directly part of or formally guaranteed by the government,” Moody’s analysts Philipp Lotter and David Staples wrote yesterday in an e-mailed statement.
A spokesperson for Emaar wasn’t available to comment when contacted after business hours. A Dubai World spokesman declined to comment on behalf of Dubai Holding and DP World. Spokespeople for Dubai International Financial Centre, DIFC Investment’s parent, didn’t answer calls to mobile phones after business hours.
DP World
Dubai Holding, Borse Dubai Ltd. and Dubai Sukuk Center Ltd. may join Dubai World in restructuring debt, Morgan Stanley analysts Mohamed W. Jaber and Paolo Batori wrote in a report Dec. 7, in which they outlined three scenarios for debt re- workings. The first includes only Dubai World’s $26 billion of debt. The second climbs to $34.8 billion by adding debt from Dubai Holding, while the third totals $46.7 billion by including obligations from other companies.
Credit-default swaps on DP World rose 34.5 basis points to 592.5, implying a 33 percent chance of default over five years with an assumed recovery rate of 25 percent, according to CMA Datavision prices. That’s an increase from a 29 percent probability Dec. 7, and a 21 percent risk of default on Nov. 19.
Sukuk
Credit-default swaps on Dubai’s government debt jumped 42 basis points yesterday to a week-high 542, according to CMA Datavision prices at 5 p.m. in London. That price implies a 31 percent probability of Dubai default, up from 29 percent on Dec. 7. The swaps traded as high as 632 basis points Nov. 27, implying a 36 percent chance of default, CMA prices show.
The contracts, which fall as perceptions of credit quality improve, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point is 0.01 percentage point and is equivalent to $1,000 a year on a contract protecting $10 million of debt.
A $1.25 billion, 2012 Islamic bond from DIFC Investments, the company controlled by state-owned Dubai International Financial Center, dropped almost 9 percent to 51.5 cents on the dollar, the lowest price since Bloomberg began tracking the data in November 2008. The company’s rating was cut four levels by Moody’s to B2, five levels below investment grade.
Islamic bonds, known as sukuk, are governed by Shariah laws barring investors from profiting from the exchange of money.
Dubai Holding Commercial Operations’ floating-rate, dollar- denominated bond due 2012 slumped 16 percent to a record-low 44.5 cents on the dollar after trading as high as 86 cents in October. The unit of Dubai Holding, owned by Sheikh Mohammed, was lowered to four levels below investment grade at B1 by Moody’s.
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