Monday, November 30, 2009

Dubai bonds sukuk

The Western financial full court press still does not get it. As Guambat has repeatedly pointed out in his last three posts, a sukuk is not a bond. There is an emerging world market of difference. And it is a difference with distinct implications for the Western order of capital, as a quick perusal of the prior posts would reveal.

Nakheel PJSC, the Dubai government- owned company that wants to defer payment of its $3.52 billion bond due in two weeks, asked Nasdaq Dubai to suspend the securities until it provides further information to the market.

Dubai World's real-estate unit Nakheel on Monday asked Nasdaq Dubai to suspend trading on all three of its listed sukuk, or Islamic bonds.

Dubai's Nakheel, developer of man made islands in the shape of palms, said on Monday it has asked for three of its listed Islamic bonds, or sukuk, on Nasdaq Dubai to be suspended until it is in a position to inform the market more fully.

Until the Western mind gets its head around the Islamic notions of debt (it doesn't exist as we know it), their mouths will continue to shoot off like a blind man at a shooting gallery.

Willem Buiter, Citibank's new Chief economist, is not one of those:

The intrinsic unimportance of Dubai World and the important wider message it conveys
It would make sense under normal circumstances for the creditors to put Nakheel into default and take control of and liquidate its assets to minimize their losses. However, Nakheel’s assets are mostly in Dubai - land and structures, finished and unfinished. We don’t know what creditor righs, especially foreign creditor rights are worth in Dubai. Will legal judgements reached in London be enforceable in the courts of Dubai? The jurisprudence of internationally traded sukuk (Islamic bonds), which comprise part of the debt involved, has not been fully tested before.

Meanwhile, back in Australia, the lot what told us the subprime events were a peculiarly American phenomenon from which Australians were immune are now telling us, again but this time about Islamic finance, no worries, mate.

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