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Deepakm Deepakm Presentation Transcript

  • DUBAI'S FINANCIAL CRISIS
    Credit management
  • ABOUT DUBAI
    • Located at the cross-roads of Asia, Europe and Africa
    • Dubai is well positioned to attract tourists
    • Shopping, seaside, sports and safety - Four of the key ingredients that have earned Dubai a growing reputation as one of the world's most attractive and rapidly developing leisure destinations.
    • Trading and commercial hub of the Middle East
  • SECTORAL COMPOSITION OF GDP OF DUBAI
  • DUBAI FINANCIAL CRISIS
    • Dubai was another fallout of the global real estate bubble
    • With global financial markets plunging after Dubai World, the government investment company burdened with $59 bn liabilities, requested for deferment of debt to its creditors for six months, on 25th Nov 2009.
    • Nakheel has a debt of $26bn & $3.5 bn Islamic bond due to be paid on 14th Dec 2009.
    • The Dubai government’s total debt is estimated at $80 bn.
    • Indian stock markets also plunged with heavy selling witnessed in banking, infrastructure and realty stocks.
  • REASONS FOR THE CRISIS
    After 2003- Dubai economic model- More debt & less equity.
    Advantage of
    Political and economic openness,
    Better infrastructure,
    Trade mark of regional and world business hub.
    FDI invited-
    Invested in real estate-Infrastructure,
    Tourism- airway
    Trade
    Mismatch between demand and supply.
    Dubai has accrued debts of approximately US$85-100 billion, or around 200% of GDP.
    Government restrictions were low.
    Lax lending standards and low interest rates.
  • ROLE OF THE DUBAI GIANTS
    Dubai’s main development engine- Dubai world and its real estate arm- Nakheel
    Issued Nakheel bonds- investors ready to invest as it was state owned
    Today many bonds are due and cash flows not enough to pay them back.
    Restructuring effect-
    It has a reported US$60 billion in liabilities, offset by a calculated US$40 billion in assets
    There is a maturity mismatch- the expected revenue is in the future while liabilities, including to contractors and suppliers, are piling up today.
  • MAJOR IMPACTS OF DUBAI CRISES ON ITSELF
    Impact on Banking.:-
    • Those banks which provided finance to various projects are feeling pinch of Dubai crises .
    • Understandably their shares have fallen since.
    2)Fall in real estate prices:-
    • Building dream projects like the Palm shaped islands, a new urban metro, the world's largest tower, a waterfront to the size of Hong Kong, a leisure park called 'Dubai land‘.
  • Contd…..
    3)Layoffs:-
    • The already reeling construction industry is seeing a major freefall. Laborers are asked to go home and whatever little construction projects were on the anvil, are shelved.
    4)Drop in demand of Gold:-
    • Dubai does not produce Gold on its own, it seeks exports from countries like India and re-exports them to other countries.
  • Contd..
    5)Immediate drop in oil prices:-
    • There was slight drop in oil prices as oil contributes to 6 % in Dubai economy.
    • This crisis is a setback pushing Dubai to rely more on oil revenue. Dubai has to pump more oil out to finance its debt. and as OPEC is not expected to increase the production quotas, expecting oil prices  to go even lower.
    6) Depreciation in Dirham:-
    • The valuation of AED (The local currency of Dubai) saw a drop. This means the strengthening of the Dollar, by a bit.
  • IMPACT ON STOCK MARKET
    Across Asia banking shares plunges down.
    • Hang seng3.1%
    • Nikkei 1.8%
    • Shanghai composite index 2.36%
    • Australian stock exchange 3.0%
    • BSE 2.0%
  • IMPACT ON REMITTANCES
    • About 4.5 M Indians stay and work in Gulf.
    • Annually remittances coming out around $ 10b.
    • Biggest source of capital inflows into India
    • Dubai is the second largest state, accounts for around 10%-12% of India's inward remittances.
  • IMPACT ON EXPORT
    India’s Export to UAE 13.1% in FY09 -
    • Gems And Jewellery – 38.38%
    • Petroleum products - 17.53%
    • Non ferrous metals - 17.42%
    • Basmati Rice - 29.4%
    • Machines - 16.34%
  • INDIAN BANK EXPOSURE
    • Indians bank have a Rs 6500 cr exposure in middle east city.
    • BOB – 10000 cr for Gulf countries.
    • Counts for 7-8% of total loan book accounts.
    • Dubai having a half of the exposure .
    • But these accounts are well maintained.
    • SBI – 1500 cr.
    • Such loans are issued for very short periods (3-6 months).
  • Foreign banks in the UAE: Loan exposure (in USD bn)
    • HSBC Bank Middle East Limited 17.0
    • Standard Chartered Bank 7.8
    • Barclays Bank Plc 3.6
    • ABN-Amro Bank N.V. (RBS) 2.2
    • Arab Bank Plc 2.1
    • Citibank N.A. 1.9
    • Bank of Baroda 1.8
    • Bank Saderat Iran 1.7
    • BNP Paribas 1.7
    • Lloyds TSB Bank Plc 1.6
  • 3 LESSONS FROM DUBAI CRISIS
    • Diversification is not just a buzzword
    • Debt does matter ... Eventually
    • Foreign investing can be risky
  • “Destroyed the confidence between borrowers and lenders and it has also shaken the confidence about the pace of a global economic recovery."
    THANK
    YOU
    Deepak Mehta