Dubai World, with $59 billion of liabilities, is seeking to delay debt payments, sending contracts protecting against default rose 116 basis points to 434 basis points yesterday, the most since they began trading in January, ranking it the sixth highest-risk government borrower, according to credit-default swap prices from CMA Datavision in London.
The swap contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A basis point is 0.01 percentage point and is equivalent to $1,000 a year on a contract protecting $10 million of debt.
Back in BURSA, we saw construction companies which have projects in Dubai being sold off last week (Gamuda, IJM, Zelan ...). Besides, it also drag down the other construction stocks as well (SUNWAY, E&O, SPSETIA ...)
BURSA may require few days to absorb the bad news (which actually started last week on construction sector). However, UBS AG, Switzerland’s largest bank, said it expects the U.A.E. will prevent a default by Nakheel. Dubai is one of seven sheikhdoms in the U.A.E. that includes Abu Dhabi, which holds 8 percent of the world’s oil reserves and bought $5 billion of bonds sold by Dubai on 25 Nov through state-controlled banks.
BURSA may require few days to absorb the bad news (which actually started last week on construction sector). However, UBS AG, Switzerland’s largest bank, said it expects the U.A.E. will prevent a default by Nakheel. Dubai is one of seven sheikhdoms in the U.A.E. that includes Abu Dhabi, which holds 8 percent of the world’s oil reserves and bought $5 billion of bonds sold by Dubai on 25 Nov through state-controlled banks.
Therefore, the risk of contagion and new credit crunch was low as Middle East is not the vital engine of growth to drive the recovery of global economy. Dubai World’s more than 70 creditors face the prospect of writedowns on as much as $60 billion of debt if they haven’t unloaded their holdings and the state-owned company fails to win additional support from Abu Dhabi. The number of banks impacted is not global and wide scale as been seen in the sub prime crisis. Those banks should be able to write down safely.
Like the old saying: Greed when people fear. It will be good strategy to buy on weakness if you see oversold signal in stocks provided there is no more "shocking" news release from finance sectors in coming days.
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