Creditors Slammed For Lending Dubai World So Much Money!

On TimesOnline: Fear of creditor wipe-out as Dubai jettisons conglomerate

Some interesting comments

• The Government of Dubai has refused to honour the debt obligations of its largest company, prompting fears that international creditors could be wiped out.
  
  Dubai World, the state-owned conglomerate, was effectively abandoned to its fate by the Emirate's Government yesterday despite previous assumptions that Dubai would stand behind the company. That has raised the likelihood that lenders to Dubai World, which has liabilities of $60 billion, could lose billions of dollars.

....

• Analysts at RBC Capital Markets said: “The bottom line is that creditors have almost no legal legs to stand on to maximise recovery values.”
  
  Royal Bank of Scotland (RBS), the bank bailed out with £53.5 billion of British taxpayer money, has been the largest loan arranger for Dubai World in the past two years, securing $2.3 billion of financing. Much of that debt will have been syndicated to other banks but RBS could lose more than £100 million as a result of Dubai’s actions. RBS declined to comment yesterday.

I was most shocked at the following statement.

• Abdulrahman al-Saleh, director-general of Dubai’s Department of Finance, said: “Creditors need to take part of the responsibility for their decision to lend to the companies.

Huh?

What on earth is happening here?

Sigh!

I really wonder if I could ever do the same!

Can I put my bankers to blame for lending me too much money????

Duh!

• The crisis at Dubai World was prompted by the need to repay a $3.5 billion Islamic bond held by Nakheel, the property developer behind the Palm Jumeirah islands, in two weeks.
  
  Nakheel said yesterday that it was suspending trading in all three of its Islamic bonds.
  
  However, Dubai World did make a small repayment on a $2 billion Islamic bond owed by the Jebel Ali Free Zone Authority yesterday.
  
  By cutting Dubai World loose, Dubai has effectively reduced its sovereign debt from $80 billion to about $20 billion...
  
  
  

Dubai Home Prices Yet To See Bottom!

On Business Times: Dubai property prices in free fall

• DUBAI: Just one year ago, property prices in Dubai were surging to record peaks undeterred by a real estate slump in major markets, but they have since gone into free fall and have yet to find the bottom.
  
  Market watchers in the former Gulf boomtown differ slightly on the magnitude of the decline so far, but all seem to agree that the prices of Dubai property, which was selling unchecked over the past three years, should drop further.
  
  "The decline in prices still has a little bit to go before bottoming out," said Sana Kapadia, vice president of equity research at the regional investment bank EFG-Hermes.
  
  "We expect a total drop in Dubai of between 50 to 60 per cent from peak prices in 2008. We have seen a cumulative decline of 45 to 50 per cent so far in Dubai," she said.
  
  Consultancy firm Colliers International echoed similar estimates in its quarterly report this month stating that the prices of Dubai housing units had dropped by half by the end of June, compared to peak prices last summer.
  
  A report by Landmark Properties last week put the drop in villa and apartment prices in the same period at 44 and 36 per cent respectively.
  
  According to a price index set by the real estate brokerage firm, the average sale price for apartments has dropped from around US$405 per sq ft to around US$257 per sq ft (US$1 = RM3.52).
  
  Prices are expected to fall further as market liquidity remains tight and costly. Mortgages are scarce, with interest rates between 8.5 and 9 per cent, Landmark Properties said.
  
  "Our forecast is that prices will have bottomed out by the end of the year, and should stabilise in the first half of 2010," Kapadia said.
  
  This crash has dragged the emirate's economy into contraction after years of breakneck growth, driven mainly by a property sector benefiting from an abundance of cash from a huge regional oil windfall and foreign investments.
  
  Economic slowdown has also led to job losses in the emirate, which had become a workforce magnet during boom time, leading to forecasts of a drop in population that would put further pressure on demand and prices.
  
  A few areas, however, have seen flickering signs of recovery.
  
  Prices in the recently completed upmarket neighbourhoods on the palm-shaped island Palm Jumeirah, which took a severe beating after shooting to record levels, rose slightly in the second quarter as investors with cash appeared to jump on bargains.
  
  A report by the property management company, Asteco, last month said the prices of villas and apartments on the Palm have risen respectively by 20 per cent and 7 per cent in the second quarter, compared to the first quarter, when they tumbled up to 65 and 53 per cent respectively from peak levels.
  
  Asteco, still however, registered an average drop of 13 and 15 per cent in the average value of villas and apartments in Dubai in the second quarter.
  
  "It would be a terrible mistake to believe that we are out of the woods," said Jeremy Mayhew-Sanders, head of investments and development at Sherwoods Property, referring to such few recovery signs.
  
  He said that some prices had improved due to an artificial shortage of units on offer in some areas, as low prices had pushed some owners to pull their units from the market.
  
  But a shortage of new housing units - a major catalyst for the surge in prices and rents over the past few years - should be the least worry for buyers as thousands of new units are being delivered this year, with more scheduled to be ready next year.
  
  Landmark Properties projects some 22,700 residential units to be delivered by the end of this year, with 40,400 others to be delivered in 2010, although many projects have reportedly been put on hold for lack of cash and interest. - AFP

Highlighted earlier.

• Dubai's House Prices Drop 41% In Q1!!
• No Longer The Same Dubai As Global Economic Crisis Hits Dubai Hard
• LCL and Its Dubai Woes

LCL and Its Dubai Woes

LCL reported its earnings.

As expected not good.

From the company's quarterly earnings notes...

• Compared to cumulative preceding year corresponding quarter, the Group has recorded lower revenue of 22.19% to RM 80.334 million. This was mainly due to some of the on-going projects have coming close to completion and hence resulted in the lower progress billing to date. The Group also recorded a loss before taxation of RM 16.433 million as compared to profit before taxation of RM9.537 million. The continuous cost overrun of on-going projects in Dubai, mainly due to the prolongation of projects and additional financial cost incurred resulting from slower collection, has negatively impacted the financial performance of the Group.

• The Group recorded a decrease in revenue of 30.68% to RM 80.334 million as compared to preceding quarter of RM 115.894 million. However, there has been some marginal improvement in the financial performance whereby the loss before taxation recorded narrowed by 22.26% to RM16.433 million as compared to RM 21.138 million recorded in the preceding quarter. During the quarter, the Group has embarked on aggressive collection exercise and has written down some receivables after commercial settlement reached with clients on payment of contract proceed due. The on-going consolidation and scaling down exercise of selective non-profit contributing operations have also contributed to the unsatisfactory performance of the Group.

Hmmm.... "mainly due to the prolongation of projects and additional financial cost incurred resulting from slower collection".. that's the main issue right?

Why is the prolongation of the projects happening? Would the answer be the property market in Dubai crashed!

Why is the slower collection happening? If the property market crashed, wouldn't the developers have a difficult time paying?

And with LCL's own balance sheet extremely stretched to extreme high borrowings, would you say that an investment in LCL is extremely risky?

Oh, how ironic it is that on the Financial Edge: Dubai leads global housing-market slump

• LONDON: Dubai, home to the man-made Palm Jumeirah and The World island developments, suffered the biggest reversal among global housing markets following the collapse of an investment bubble, Knight Frank LLP said.
  
  House prices in Dubai, the second-largest of the seven sheikhdoms that make up the United Arab Emirates, fell 32% in the 12 months ended March 31, according to a report by the London-based property broker published yesterday. A year earlier, homes appreciated at an annual rate of 48%.
  
  Dubai “is in a mess”, said Nick Barnes, head of international residential research at Knight Frank. “A lot will depend on developers and how long they can hold on before getting into fire-sale territory.”
  
  The sheikhdom was hurt more by the global financial crisis than other property markets because of the construction boom that created thousands of new homes just as demand began to evaporate. Within a year, Dubai went from being the fastest rising of 46 markets monitored in the Knight Frank global house-price index to the second-biggest decliner after Latvia.
  
  Deyaar Development PJSC, the Dubai-based company that put a quarter of its projects there on hold, will announce a 500 million-dirham (RM478.45 million) property fund to buy distressed assets within three weeks, chief executive officer Markus Giebel said in an interview on May 14.
  
  In the first quarter of 2009, house prices in Latvia dropped 36%, while Singapore was the third-worst performing market with a slide of almost 24%. They were followed by the US and the UK, where prices declined about 17%.
  
  The biggest increase in property values tracked by Knight Frank was for Israel, where homes appreciated by almost 11%. The Czech Republic and Jersey came second and third respectively, the broker said.
  
  “In Israel, demand still outweighs supply,” said Werner Loval, founder of Anglo-Saxon Real Estate, an Israel-based property broker. Israel’s largely Jewish foreign buyers are motivated “more by sentiment” than by speculation, he said. — Bloomberg

Yup, that super nice looking Palm Jumeirah and The World island is in trouble! (do see Dubai's House Prices Drop 41% In Q1!! and also No Longer The Same Dubai As Global Economic Crisis Hits Dubai Hard. )

Past postings on LCL

• Some Thoughts On LCL
• Update On LCL
• Warning Sign On LCL As It Misses Deadline To Submit Audited Reports!
  

Dubai's House Prices Drop 41% In Q1!!

Early last month, I highlighted No Longer The Same Dubai As Global Economic Crisis Hits Dubai Hard.

In that posting I had highlighted the crash in Dubai's real estate!

In fact, George Soros too had called Dubai as the biggest real estate bubble in the world.



On Forbes, the following article caught my attention Research firm: Dubai home prices drop 41 pct in 1Q

• Home prices in the once red-hot Middle East boomtown of Dubai plunged 41 percent in the first three months of 2009 as the global economic slowdown raised concerns about job security and dried up financing, according to figures released Tuesday that suggest nearly two years of gains have evaporated.
  
  The drop in the home price index compiled by real estate consultancy Colliers International marks the first consecutive quarterly decline and the first year-over-year slide since Dubai's property boom began earlier this decade.
  
  "The heat has gone out the market completely," Colliers Middle East Chief Executive John Davis said in an interview.
  
  Dubai has staked much of its reputation on attention-grabbing property developments including the world's tallest skyscraper and a near-empty archipelago resembling a map of the world. Many of the city-state's real estate developers have strong ties to the government and rely on foreign workers, who send billions of dollars back home to families in Asia each year.
  
  Colliers' index, compiled with six local and international banks, measures prices in parts of Dubai where foreigners have been allowed to buy since the market was opened in 2002. Those areas were largely responsible for Dubai's real estate boom.
  
  The 41 percent drop from the previous quarter is the second decline in a row. Colliers reported an 8 percent drop in the last three months of 2008, which the company described as likely the first decline since the boom began.
  
  The research firm cited several reasons for the decline, including some such as a lack of financing and worries about job security that have become common throughout much of the world.
  
  Other factors were more specific to the Dubai market, where citizens account for only 10 percent of the population and typically already own their homes.
  
  Colliers noted that a number of developers failed to provide sufficient details about their projects, creating an "information void (that) was quickly filled with negative market rumors."
  
  At the same time, investors enticed by low down payments in earlier years rushed to sell their holdings before final payments of as much as half the purchase price came due. People looking to buy homes to live in - known in the industry as "end users" - are now largely staying on the sidelines.
  
  "We're dealing with a completely different market," Davis said. "The speculators have all gone. The end users are extremely limited. ... The expatriate community is extremely concerned about employment prospects."
  
  Developers have responded to the downturn by slashing staff, renegotiating contracts and shelving scores of projects. The Dubai government last week said it has distributed about $5 billion worth of loans to state-affiliated developers to help them cover unpaid bills.
  
  Nakheel, the government-run developer best known for its manmade island developments, declined to say whether it received any of the government loans but did say it is "reassessing" business objectives to "accommodate the current economic climate."
  
  Emaar Properties, builder of the world's tallest building in central Dubai, said this week none of its projects are on hold and that it is offering "several options" to help customers, including allowing buyers to transfer purchases of unbuilt projects to those nearing completion.
  
  At least one developer hopes to turn the slump to its advantage. Deyaar Development Co. CEO Markus Giebel said the company plans to launch a number of funds, including one for 500 million dirhams ($136.1 million) focused on buying up some of the developer's distressed properties.
  
  Year-over-year, Dubai home prices dropped 34 percent in the first quarter. Collier's index is now about where it was in the second quarter of 2007, and little higher than in the first part of that year.
  
  Davis said prices are likely to continue falling, though not as sharply as in the first quarter. He said it was too soon to predict when the market would hit bottom.

Here is the link to Collier's report: here

No Longer The Same Dubai As Global Economic Crisis Hits Dubai Hard

Posted last October Crisis Hit Arab Nations, Sending Stocks Into Tailspin

I decided to check out how Dubai is doing.

Global Economic Crisis Hits Dubai

• Dubai's hey day, the sound of construction was everywhere. High rises and tourist resorts were built by legions of foreign workers, most of them from India and Pakistan. Dubai became an international magnet, reinventing itself as a financial capital and tourist mecca in the Persian Gulf. Then the global crisis reached this outpost and boom turned into bust.
• More than half of the construction projects in the United Arab Emirates, worth $582 billion, have been put on hold, according to the market research firm, Proleads. Some projects are still going ahead, thanks, in part, to the $10 billion bailout from the UAE's capital, Abu Dhabi.
• In the meantime, many Western professionals have simply left. Foreign news reports claim 3,000 cars have been abandoned at the Dubai Airport parking lot - left behind by debt-ridden foreigners fleeing the country. Dubai's police chief has angrily refuted the claim.
• "People are losing their jobs here," he said. "Money is being lost. There is an uncertainty about how long the credit crisis will last. However, we are optimistic of oil prices returning. Banks should start leading at the latter half of this year when the bailouts start filtering through. There will be a very quick rebound in Dubai."
• It is a hope to return to boom times and to complete a skyline of half-finished buildings - a hope that now seems distant.

No wait-and-see

• In fact, Dubai's open economy and strong correlation with international markets led it to be hit very hard by the crisis.
• "Dubai is not the same by any means. The streets are empty, the airport waiting for visitors and residents are wondering, what next?"
• "Sixty per cent of real estate projects have come to a standstill," he added.

Gaudí would have gawped Dubai wakes up to harsh realty

• There were images everywhere indicating the end of the era of excess. On Al Wasl Road, I drove by a row of broken-down villas. The friend I was staying with said he thought they were being demolished to make room for yet another grand real estate project.
• On Jumeirah Beach Road, there was a half-built mosque that had been painted black, a world away from the cheerful pastel minarets elsewhere, a manifestation perhaps of the fact that God may be magnanimous one moment but unforgiving the next. There are so many half-completed buildings in Dubai that it sometimes seems like a city recovering from an earthquake.

Dubai laborers in hard times

• The army of foreign laborers built Dubai when the economy was booming, but thousands of are now out of work. Most are from South Asia, employed in the past to build ultra-modern high-rises, hotels and resorts.Without money coming in, many have had to stay on in the emirate. Some have been unemployed for more than a month but say they say they cannot return home because their employers have ordered them to wait until work picks up. In many cases the employers hold the passports of individual workers, effectively blocking their chances of looking for other jobs under the country's sponsorship system.

U.A.E. Central Bank Steps In to Support Dubai Debt

• Home to the world’s tallest building, most expensive hotel suite and largest manmade islands, Dubai borrowed $80 billion to turn itself into a regional financial and tourism hub. Moody’s Investors Service said in October that Dubai may need help from Abu Dhabi to pay for its debt. The emirate may have to refinance $15 billion this year in maturing loans and bonds, Moody’s said.

Dubai Financial Market General Index is a capitalization weighted price index comprising stocks of listed companies, whose primary listings debuted on DFM on or after January 1st, 2004. The base value of the index is 1000 as at January 1st 2004.

A clip on YouTube.

As quoted, is this the end of the era of excess in Dubai?