Monday, November 30, 2009

Dubai, Abu Dhabi Equities Drop Sharply For Second Day

. Monday, November 30, 2009

By Polya Lesova

Equities in Dubai and Abu Dhabi fell sharply for a second session on Tuesday, with investors continuing to worry about Dubai World's debt troubles, even as the conglomerate said it's holding constructive talks with its creditors.

Other markets in the Middle East also sold off, with Qatar's benchmark equity index falling more than 8%.

Dubai World, a sprawling conglomerate owned by the government of Dubai, stunned investors last Wednesday when it announced it was seeking a standstill on its debt.

The company's debt woes triggered steep declines in the Dubai and Abu Dhabi stock markets on Monday. Investors continued to sell stocks on Tuesday.

In Dubai, the main stock index dropped 6.4% to 1,815 points in recent trading. All 25 securities that traded posted losses.

"With banks and real-estate developers making up more than 75% of investable market cap, U.A.E. markets offer few places to hide," said Andrew Howell and other strategists at Citigroup in a research note.

"Dubai looks most vulnerable, although Abu Dhabi stocks are also at risk given the exposure of Abu Dhabi banks to Dubai entities," they wrote. Volatility could be sharpened since it is a short holiday week in the United Arab Emirates.

Real-estate shares in Dubai dropped 9.4%, leading the market lower. Utilities fell 9%, while financial stocks were down 8%, according to the Web site of the Dubai Financial Market.

Among real-estate companies, shares of Emaar, Arabtec and Drake & Skull International all dropped 10%. Property group Deyaar Development fell 7.7%.

In the financial sector, Dubai Islamic Bank dropped 7.4% and Shuaa Capital traded down 10%.

The Dubai Financial Market will be closed starting from Wednesday because of the National Day of the U.A.E. The market will resume working on Sunday.

In Abu Dhabi, the General stock index dropped 4.6% to 2,545 points, paring some of its earlier losses. Real-estate stocks dropped 9.8%, while energy shares fell 6.7%.

Shares of DP World, /quotes/comstock/11i!dpwrf (DPWRF 0.44, +0.01, +2.33%) a subsidiary of Dubai World, fell 3% on Nasdaq Dubai.

Elsewhere in the region, Qatar's main stock index tumbled 8.4% to 6,592 points on Monday, the first trading day for the market since Nov. 25.

Shares of Commercial Bank of Qatar dropped 10%, while Doha Insurance fell 9.5%.

Kuwait's benchmark equity index fell 2.8% to 6,737 points. Investment and banking shares fell about 4%, while real estate stocks dropped 3%.

The biggest stock decliners included Abyaar Real Estate Development Co. and Umm Al-Qaiwain Cement Industries Co., which both fell 9%.

In Egypt, the EGX-30 stock index rose 1.4% to 5,949 points in recent trading, rebounding from its 8% tumble in the previous session.

On Monday, Dubai's stock market ended down 7.3%, while Abu Dhabi's equities tumbled 8.3%. It was the first trading day since Dubai World last week asked creditors for a standstill on its debt, triggering turbulence in global financial markets.

Dubai World restructuring
Dubai World said late Monday it's holding "constructive" discussions with its creditors to restructure about $26 billion of debt, of which about $6 billion is related to Nakheel's Islamic bonds known as sukuk. Dubai World's total liabilities are estimated at $60 billion.

The restructuring involves Dubai World and its Nakheel and Limitless subsidiaries, both real-estate developers.

The process doesn't involve any of the other subsidiaries of Dubai World -- such as investment house Istithmar or DP World, the marine-terminal operator -- which are on a "stable financial footing," Dubai World said in a statement.

It also said that the restructuring process will include "an assessment of deleveraging options, including asset sales."

Dubai World is a sprawling holding company, wholly owned by the city-state's government, with interests in real estate, transportation, logistics and natural resources.

A senior official said Monday that Dubai's government doesn't guarantee Dubai World's debt and that creditors should work with the company and shoulder part of the responsibility for the restructuring.

Ahmet Akarli, a strategist at Goldman Sachs, said that the exact terms of Dubai World's restructuring remain "highly uncertain," but "it seems investors may well end up with an extension of maturities and possibly even a significant haircut."

"We are looking at a much broader process of financial consolidation, including debt restructuring, asset sales and potential liquidations - all which may take considerable time and imply significant costs for investors," Akarli said in a note to clients.

Disclosure: Author does not own any of the stocks discussed here.

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