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Credit and loan syndication management

Prepared by: Hocine boughezala hamad 802042

Prepared for : prof: Cik Julaila Johari

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Introduction

Background of Dubai

Dubai debt problems

Dubai after crisisDubai after crisis

Conclusion Conclusion

Content

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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.

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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

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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)

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Dubai’s contribution to theUAE’s Gross Domestic Product (GDP) is around 29%

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Sectoral composition of GDP of Dubai

Dubai Debt Problems

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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.

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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.

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some perspectives in terms of economic effects:

1. the scope of any possible restructuring would appear to be small relative

to available assets;

2. UAE’s net foreign assets remain very substantial, even if there is

uncertainty over which firms will be backed by them;

3. 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.

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Historical Dubai Credit-default swap (CDS )

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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.

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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.

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Consolidated management accounts ofDubai World (as of 31 December 2008)

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UAE annual redemption profile - 2009 through 2037 (USDbn)

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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.

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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.

Dubai after crisis

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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.

.

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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.

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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 .

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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

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Thank you or attention