ALL EYES ON DUBAI

ALL EYES ON DUBAI
The Economic Times, November 30, 2009, Page 1

Global banks, fund managers and central banks are fishing for new clues to take their next call on the citystate. Banks and stock exchanges in Dubai will reopen on Monday after an extended Eid holiday, but ministries and state-owned agencies will remain shut till December 6. The saving grace is that the UAE central bank said on Sunday that it will stand behind local and foreign banks that face losses from Dubai World. It also opened a new lending window for banks. But some questions linger, says Sugata Ghosh

Is there a chance that the financial crisis could boil over to banks?

Unlikely. Because all customer deposits in local and foreign banks in UAE are guaranteed by the government. This was done last year.

What happens to property buyers and realtors?

Many investors, including some HNIs from India, have booked properties in Dubai with a part-payment of 10-30%. This money may get stuck. New investors, looking to buy cheap, will find it difficult to get loans as most foreign banks will trim their exposure to not just Dubai, but the entire Gulf.

Will the virus spread to other markets?

There's already a concern over the inadequate capital of Chinese banks, Fitch downgrade of Mexico and a devaluation by Vietnam. Global investors and banks will now take a hard look at various emerging markets and also economies like Greece and Hungary. Also, there will be a question mark on other Dubai entities and bonds with quasi-sovereign support.

How are policymakers expected to respond?

Central banks and most governments will keep alive the stimulus created by pumping money post-Lehman collapse. They will try to figure out whether what happened in Dubai is just a tip of the iceberg. Mopping up liquidity and interest rate hikes may have to be delayed. Money will hunt safe assets and bubbles in some markets will grow bigger and bigger.

Bad news for India?

A lot depends on how things unfold. MFs may get less investments from Dubai NRIs while developers here are likely to see a demand slowdown. In the secondary market, sentiment would impact stocks. There may be a small opportunity for Indian professionals if Dubai companies decide to fire high-cost expats from the West.

But who will finally bail out Dubai? Abu Dhabi has said it may offer support on a case-by-case basis...

Investors will get some relief from the UAE central bank's statement. There will be more comfort if it promises to repay the Nakheel bonds that are coming up for repayment on December 14. Other forms of restructuring would mean losses for investors: bonds were trading at a discount of 50% and investors may have to forgo 40-50% of the principal amount.

MARKET MAY BUCK BLITZ

IF YOU HAPPEN TO BE A

contrarian investor, the best strategy perhaps would be to book profits on Monday. The widely-held sentiment in the stock market is that the debt crisis that unfolded in Dubai last week is unlikely to have a big impact on Indian equities, reports Santosh Nair from Mumbai.

MEET STARS NEXT DOOR

BUYING A VILLA IN DUBAI

is less expensive than buying an apartment in South Mumbai, reports Sachin Dave from Mumbai. And chances are that you will end up in the same neighbourhood as your favourite star as a couple of years ago, several Bollywood stars had reportedly made a beeline for Dubai properties.