Imaging yourself floating along waters so crystal blue that you can see the future…
Nov. 26 (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 cost of protecting government notes from Abu Dhabi to Bahrain rose, extending the steepest increase since February as Dubai World, with $59 billion of liabilities, sought a “standstill” agreement from creditors. Its debt includes $3.52 billion of bonds due Dec. 14 from property unit Nakheel PJSC. Dubai credit-default swaps climbed 90 basis points to 530 after yesterday increasing the most since they began trading in January, CMA Datavision prices showed.
Dubai World’s assets range from stakes in Las Vegas casino company MGM Mirage to London-traded bank Standard Chartered Plc and luxury retailer Barneys New York through asset-management firm Istithmar PJSC. The Dubai government’s attempt to reschedule debt triggered declines in stocks worldwide that had been rebounding from the worst financial crisis since the Great Depression.
BUT WAIT… WHATS A CREDIT DEFAULT SWAP? (HERE’S THE ANSWER)
So you see that as the markets react to the perception that an entity has an increased probability of defaulting, the cost to insure the debt that they issued increases… Basically the market is freaking out a little (if you will)
Comparative Debt Burden
On the brink…
Emaar Properties PJSC, the United Arab Emirates’ biggest developer, was cut by four levels by Moody’s to Ba2, two steps below investment grade. Jebel Ali Free Zone, an operator of business parks, and DIFC Investments were also lowered to speculative-grade by Moody’s yesterday. DP World and Dubai Electricity & Water Authority were downgraded two levels to Baa2, the second rank above junk. Moody’s and S&P said they may cut ratings further.
So lets keep watching this because if you remember in the past, anytime there is a large-scale risk (and we are talking billions) of default, the markets tend to not like that. Therefore, banking stocks, developer stocks, and emerging market stock exchanges will probably get punished.
I remember about a year ago this time I was looking at some real-estate opportunities in the area and something interesting came about… The level of transactions going on across Dubai compared to the level of occupancy pointed directly towards mass speculation. Think about it… If you are looking @ a year over year increase of homes bought and sold of lets say 80% yet occupancy at the major complexes is 40% and stays flat, that means that people are buying but not living in them. In some cases, real estate investors were buying properties and holding them off of the market (not selling) so that the inventory would be low and the prices would say high. Sounds like musical chairs right?
Lets see what develops. To keep informed check out this website…
3E
{ 3 comments }
