Abu Dhabi Bails Out Dubai

Yet another saved by the bail out bell as the bubble pops story is emerging, this time Dubai World.

Abu Dhabi’s government provided $10 billion for Dubai’s financial support fund to help repay obligations, including the $4.1 billion needed for Nakheel PJSC’s Islamic bond maturing today.

You can bet stocks are going to take off like a rocket tomorrow.

Dubai is also quickly throwing together a comprehensive restructuring law, following international standards for transparency and creditor protection (for us Western folk, read corporate bankruptcy), and issued this statement:

This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring its remaining obligations.

U.A.E. Central Bank to "Stand Behind" Lenders, Abu Dhabi - No Blank Check

Looks like we have another bail out, middle east style.

Bloomberg is reporting, the U.A.E. central bank is offering loans at 50 basis points in a special facility.

The United Arab Emirates’ central bank said it “stands behind” the country’s local and foreign banks, which face losses from Dubai World’s possible default, and offered them access to more money under a new facility.

Banks will be able to use a special facility tied to their current accounts that can be accessed at a cost of 50 basis points above the three-month local benchmark interest rate, the Abu Dhabi-based regulator said in an e-mailed statement today.

CDSes on Dubai went to 647 basis points since the state owned Dubai World said they wish to delay repayment.

BoA warns on Dubai Sovereign Default

Bloomberg is reporting that Dubai World may end up in a sovereign default.

Dubai’s debt woes may worsen to become a “major sovereign default” that roils developing nations and cuts off capital flows to emerging markets, Bank of America Corp. said.

“One cannot rule out -- as a tail risk -- a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s.

With that, I think it's time to review globalization and contagion.

Be Glad Tomorrow is a short Trading Day - Dubai Taking it's Toll

World Markets are reacting to the news of Dubai World and it's pretty bad

The selling resumed on Friday in Asia, with the Hang Seng Index down 4.8% and the Nikkei 225 Average down 3.2%, their worst percentage fall since March. Markets were struggling to figure out what kind of exposure banks had to Dubai debt.

Shares of heavyweights Standard Chartered Bank and HSBC /quotes/comstock/13*!hbc/quotes/nls/hbc (HBC 62.07, 0.00, 0.00%) fell over 7% in Asian trading. The banks rank as the top two lenders respectively in the United Arab Emirates.

Gold dropped to 1140 from an all time high of 1192 earlier. The reasons are the need to raise cash and the dollar being safe haven and stopping the dollar shorts. Margin calls by the need to raise cash as well as the rising dollar making gold more expensive are also cited as reasons.

Dubai considers debt default

I don't think anyone saw this one coming.

(Bloomberg) -- Dubai shook investor confidence across the Persian Gulf after its proposal to delay debt payments risked triggering the biggest sovereign default since Argentina in 2001.

The scary thing is that if it can happen to Dubai it can happen to almost anyone.

Gulf region default swaps jumped, with contracts linked to Bahrain adding 29 basis points today to 223.5, the biggest increase since Feb. 18. Contracts linked to Abu Dhabi added the most since February yesterday, climbing 36 basis points to 136.5 and were another 23 basis points higher at 159.5 today, according to London-based CMA. Qatar default swaps rose 13 basis points to 117, adding to yesterday’s 11 basis-point increase.

Middle East decoupling from US dollar

Pressure mounts to drop dollar peg:

Gulf-based analysts point out that most of the currencies of the GCC are undervalued against the dollar, based on their current-account balances, inflation and costs of goods and services. The UAE dirham was undervalued by 10-15 per cent and the Saudi riyal by 25-30 per cent, according to a report by Deutsche Bank AG.
"The dollar peg prevents nominal appreciation. Since the dollar itself has been falling, the result is rising domestic inflation. Some Gulf economies now have inflation rates of around 10 per cent," analysts said. Markets piled pressure on Gulf currencies last year as speculation mounted that more GCC countries would follow Kuwait and abandon links to the weak dollar partly to curb imported inflation.