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Dubai Crisis

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  • 1. Credit and loan syndication management Prepared by: Hocine boughezala hamad 802042 Prepared for : prof: Cik Julaila Johari
  • 2. Introduction Background of Dubai Dubai debt problems Dubai after crisis Conclusion Content
  • 3. introduction
    • Dubai is known as the “Pearl of the Arabian Gulf.” With a thriving tourist industry, Dubai is a popular destination due to the clean environment, blue waves and sunshine, amazing shopping and exhilarating water sports. Even with the modern buildings and a ‘futuristic skyline It’s one of the most expensive places to live or travel too, Dubai has quickly prospered into one of the world’s most prominent cities.
  • 4. Dubai - Background
    • Second largest emirate of the United Arab Emirates (UAE)
    • Member of the Arab Gulf Cooperation Countries (AGCC)
    • Dubai : City of Merchants
    • Ruled by the Al Maktoum Family
    • Area: 4,114 sq. km
    • Population: 1.204 million (Year 2005)
    • 17% of population are UAE nationals
    • Cosmopolitan city with 120 nationalities
  • 5. Dubai - Economy
    • Dubai’s GDP in 2005: US$38.2 billion ( +26.7% from 2004 )
    • Oil 5%, non-oil 95%
    • Main non-oil industries: Trade, Tourism,Manufacturing and Transport
    • Diversified economic base
    • Currency is UAE Dirham (USD 1 = AED 3.67)
  • 6. Dubai’s contribution to the UAE’s Gross Domestic Product (GDP) is around 29%
  • 7. Sectoral composition of GDP of Dubai
  • 8.
    • Dubai Debt Problems
  • 9. Dubai's debt crisis
    • Dubai's debt crisis has renewed concerns over the health of the global financial system and its fallout on the global economy.
    • Government-owned Dubai World shocked the world last two months after it asked for a six-month extension on debt repayments totaling US$59bn. Dubai World is the Emirate’s largest and most diversified investment vehicle. The Dubai government’s total debt is estimated at $80 bn.
  • 10. Dubai’s debt situation and wider implications
    • The Government of Dubai’s recent announcement that it intended to ask its creditors to agree to a payment standstill on Nakheel and Dubai World financial obligations until at least 30 May 2010 has thrown global financial markets into turm oil. The surprise announcement came a few hours after the Government of Dubai announced that it had secured USD 5.0 bn from two Government of Abu Dhabi-owned banks, just three weeks before a USD 3.5 bn Nakheel sukuk is due to mature and after assurances from the Dubai authorities in recent months that it would continue to enjoy direct and indirect support from the UAE. In this report, we review Dubai’s debt situation, the exposure of the main companies under our
    • coverage to any potential restructuring, and the broader regional implications of Dubai’s
    • announcement.
  • 11. some perspectives in terms of economic effects:
    • the scope of any possible restructuring would appear to be small relative to available assets;
    • UAE’s net foreign assets remain very substantial, even if there is uncertainty over which firms will be backed by them;
    • Dubai constitutes only 8% of GCC GDP and Abu Dhabi's oil wealth and ambitious investment plans should support a return to growth in the UAE despite the troubles in Dubai.
  • 12. Historical Dubai Credit-default swap (CDS )
  • 13. Analysis a Dubai problems debt
    • Dubai crisis started from 'Realty' bubble which started to bust after unrealistic prices across the board  and without thinking about the sustainability of prices, demand and supply. Every Tom, Harry and Dick (btw gulf has in abundance)  was trying to become  another Donald Trump and people got sucked in the name of owning a house. $40K  worth of house was sold around a  $200 K  and people went on to buy despite beyond their reach. Their logic- Today’s  $200 K  house would get a value of $1200 K within 5 years. People started to think an asset would always appreciate than thinking about the real value.  Realtors spent a lot of money in unproductive things to justify the prices.
  • 14. Cont’s
    • Banks started to give loans to real estate companies without assessing the real value. Their aim is to mint millions in interests. But these banks have forgotten to assess real value of realtors. Banks started to concentrate on variety of activities other than banking. They ventured in Forex, and derivatives which no one understands in the world. People went on buying homes with multiple EMIs without thinking about  their financial stability & sustainability of the plan.
    • Greed is the only reason for this crisis. Every product and service was priced artificially and companies have been started overnight and it looted money from public. “Overnight millionaire” was the motto for most of the entrepreneur.
  • 15. Consolidated management accounts of Dubai World (as of 31 December 2008)
  • 16. UAE annual redemption profile - 2009 through 2037 (USDbn)
  • 17. The impact on Dubai itself
    • Layoffs –Laborers could be asked to go home and whatever little construction projects would be on the anvil, will surely be shelved..
    • Banking – Local banks would surely feel the pinch of this crisis. Though, they have pledged their support to Dubai World,
    • Bullion prices – Gold may see a big drop in demand. Dubai has been known to be a Gold Hub, and though it doesn’t produce Gold on its own, it seeks exports from countries like India and re-exports them to other countries, prices can be expected to go down surely.
    • Crude Oil – The crude oil prices could go down too.
    • Foreign Exchange – The valuation of AED (The local currency of Dubai) could see a drop. This could probably mean the strengthening of the Dollar, by a bit.
  • 18. Crisis impact on the world
    • Buying real estate is a major commitment that people will be reluctant to undertake at a time of global financial turmoil and the absence of buyers would have an inevitable impact on prices. Credit also tends to tighten under such circumstances, although it could be that the UAE Central Bank decides this is the point at which lower interest rates become essential for economic well being.
    • In that case you could plausibly suggest that another global financial crisis might represent the bottoming out of Dubai real estate. For usually the peaking out of interest rates marks the bottom of a down cycle in property.
  • 19.
    • Dubai after crisis
  • 20. Abu Dhabi gives Dubai $10bn to help pay debts
    • Abu Dhabi provided $10 billion to Dubai's government, more than enough to repay the $4.1 billion due the same day to holders of a sukuk, or Islamic bond, issued by Nakheel, a prominent developer. The firm belongs to Dubai World, a holding company owned by the Dubai government, which less than three weeks earlier had requested a standstill on repayments of $26 billion of debt, panicking global markets, so Dubai's creditors had long assumed that the emirate would be saved by its wealthier neighbour, a fellow member of the United Arab Emirates (UAE) that is blessed with 90% of its oil. But the standstill announced on November 25th departed from this script, creating genuine tension.
    • .
  • 21. Relationship between Abu Dhabi and Dubai
    • The assumption that government help would be at hand for Dubai's state-linked corporate stemmed from a wider assumption that Abu Dhabi would not let its neighbour fail. With Dubai having built up so much debt over the last few years, it is reliant on the UAE capital and its oil wealth to see it through the crisis., the markets became increasingly reassured that Nakheel would be able to repay its December debts.
  • 22. Why are financial markets and banks worried
    • Lenders, mainly European banks, around the globe have lent around $40 billion to Dubai World. Any default by Dubai World will put these banks, which are yet to recover fully from the recent global crisis, in a tight spot. This will also affect other companies in the region and credit rating will take a blow. Stock markets are worried over bank defaults and the big blow to Dubai’s reputation as an international finance centre. Indian investors are also worried about decline in remittances and loss of jobs because amount Indians constitute nearly 40% of it’s population .
  • 23. Conclusion Even if Dubai's troubles deepen, there may be a silver lining. He predicts that Dubai World's lenders will supply funds needed to complete real estate projects that have stalled, because the buildings will be more valuable finished. He notes that Florida suffered a burst real estate bubble in 1926, but that the excess building eventually drew people to Florida from around the U.S. and eventually made the state an economic powerhouse . "A similar thing will happen in Dubai," he adds. "Their ego is a bit bruised…They will have to be a bit more realistic. N. Bulent Gultekin Associate Professor of Finance University of Pennsylvania
  • 24.
    • Thank you or attention