Nikkei hits 4-mth low on yen, Dubai debt worries - Reuters Nov 26

Brazil Stocks Open Lower As Dubai, Forex News Weighs - WSJ Nov 26

Dubai defends move after confusion, Financial Times Nov 26 (reg. required)

Stock markets around the world were convulsed on Thursday as investors scrambled to understand the implications of Dubai World’s restructuring and unexpected debt standstill.

The lack of information about Dubai’s flagship government-owned holding company, made worse by a religious holiday in the Middle East, prompted indiscriminate selling of stocks linked to the region. The cost of insuring against default in emerging markets around the world also leapt.

“In the absence of definitive information it’s hard to see the market treating this as an isolated one-off,” said one trader.

After markets in Europe closed Dubai issued a statement defending its move as a “sensible business decision”.

Bloomberg, By Natalie Weeks, November 26

Greek stocks plunged, posting their biggest loss in more than a year and dragging the country’s benchmark index into a so-called bear market, as shares in the nation’s lenders slumped.

The ASE Index fell 6.2 percent to 2,225.32 at the close in Athens, the worst performer among 18 western European benchmarks. The gauge extended its fall from last month’s high to 23 percent. A bear market is generally defined as a drop of more than 20 percent. The FTSE/ASE 20 Index of the country’s biggest companies slipped 7.3 percent to 1,153.29. The Cypriot General Index plummeted 11.4 percent to 1,432.3.

European stocks slumped today the most in seven months after Dubai’s attempt to reschedule its debt rattled investors from Shanghai to London. Greek stocks have fallen from their peak this year on Oct. 14 on wider concerns about the country’s economy. EU finance ministers will reprimand Greece next week for failing to take “credible and sustainable” measures to reduce its budget deficit toward the EU limit of 3 percent of output, a draft document shows.

Dubai seeks a reprieve on its debts

The Economist, November 26

ONE of the biggest events in the Muslim calendar, Eid al-Adha, which begins this weekend, is supposed to be a festival of sacrifice. On November 25th investors in Dubai were given an early chance to get into the spirit of things. The emirate’s government asked creditors of Dubai World, one of three big government-backed conglomerates, to agree to a standstill on repayments until May 30th 2010 at the earliest. The standstill does not apply to Dubai Ports World, which operates one of the biggest container terminals in the world. But it does include the $4.05 billion due on December 14th to holders of an Islamic bond, or sukuk, issued by Nakheel, a developer responsible for the Palm Islands and other spectacular land-reclamation projects.

The announcement left investors feeling wronged and wrong-footed. Only weeks ago, Sheikh Mohammed bin Rashid al-Maktoum, Dubai’s ruler, assured investors that the emirate would soon raise the funds to meet “current and future obligations”. Either he was not ready to reveal what was afoot, or he did not know. In an autocratic regime like Dubai, bad news acquires an extra coating of sugar with each step it takes up the hierarchy.

Dubai’s debts are heavy, amounting to about $80 billion including the government and the conglomerates it controls. Investors had half-expected Dubai World to seek forbearance from its bankers, asking them to extend their loans. But they felt sure the emirate would make good on publicly traded instruments, and in particular Nakheel’s sukuk, rather than suffer further damage to its financial reputation.

The dismay of investors was quickly apparent in the market for credit-default swaps (see chart) and in the equally active market for gossip. “Normally we know what’s going on,” says one sheikh in Sharjah, another member of the United Arab Emirates. “Now we haven’t a clue. This smacks of a complete lack of control.”

Bloomberg, By Tal Barak Harif, November 27

Dubai’s debt woes may worsen to become a “major sovereign default” that roils developing nations and cuts off capital flows to emerging markets, Bank of America Corp. said.

“One cannot rule out -- as a tail risk -- a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s,” Bank of America strategists Benoit Anne and Daniel Tenengauzer wrote in a report.

A default would lead to a “sudden stop of capital flows into emerging markets” and be a “major step back” in the recovery from the global financial crisis, they wrote.

Guardian UK - Large losses feared at HSBC and RBS as City watchdog seeks urgent assurances.

City regulators are urgently seeking assurances that Britain's major banks are protected from the deepening debt crisis in Dubai amid fears that a possible default by the region's major property developer will cause another major jolt to the already fragile financial system.

The Financial Services Authority is understood to have demanded that the firms it regulates are open about their exposure to the troubled Dubai entities and along with the tripartite authorities – which also include the Bank of England and the Treasury - the FSA is continuing to monitor the situation closely.

It is believed the banks argue that their exposure is exaggerated and the authorities have reached an initial assessment that the situation is manageable.

But analysts said UK banks had greater exposure than their rivals owing to Britain's traditional links to the Middle East, with London-based institutions such as HSBC and Standard Chartered heavily focused on lending to emerging markets during the Dubai property boom.

Bank analysts at JP Morgan said lenders' main exposure is through $14bn of syndicated loans to Dubai World. It pinpointed the state-backed Royal Bank of Scotland as having the biggest potential problem, as it helped arrange $2.3bn of those loans. However, it is unclear how much of that $2.3bn RBS passed on to other lenders and it could have exposure to just 10% of the total sum, $230m. After recoveries any eventual loss would probably be far less.