Monday, December 14, 2009

To no one's surprise, Uncle Dhabi stumps up. But what's next?

Stocks, Futures Rebound as Dubai Gets Nakheel Funds; Oil Falls
Asian stocks and U.S. index futures rebounding from losses as Abu Dhabi provided $10 billion to prevent Dubai’s Nakheel PJSC from a default. Oil fell for a ninth day, the longest losing streak in eight years, after a report on Japanese business confidence showed exporters scaling back investment plans.

This is a well expected infusion of liquidity to abort the sinking Nakheel sukuk.

But, as has been pointedly pointed out before, and without putting too fine a point on the point, the Dubai "problem" is not simply liquidity but the fragile and untested structure of Islamic finance when tested by issues of solvency.

This has not gone unaddressed by Dubaii:
The Government of Dubai, acting through the Supreme Fiscal Committee ("SFC"), today announces a set of actions in relation to Dubai World: HH Sheikh Ahmad Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee said:

"Finally, today the Government of Dubai will announce a comprehensive reorganization law, a framework that is based upon internationally accepted standards for transparency and creditor protection. This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations."

The devil will of course, in whatever religion or other bureaucracy, be in the details. In this particular case, the devil will have to finesse the principles of Islamic finance, as well as its religious principals. Will the more conservative Emirates be looking carefully over the shoulder of Dubai's Sheik Maktoum when its government proclaims new law on the subject?

This may get a more critical examination than implied by the statement. It is probable that what has not gone unnoticed by Abu Dhabi has not gone unaddressed by Dubai. But maybe more people will be paying attention this time around, from all sides of the debate. And likely, Islamic finance will be structured more to Abu Dhabi's scripture than Dubai's script.


Meanwhile, although it is certainly convenient to some that Abu Dhabi stumped up $10 Billion to pay off some of Dubai's debts, other debtors may be making more assertive efforts to get Uncle Dhabi to bail them out, too.

Dubai owes Japan firms $7.5 bln in uncollected bills: Nikkei
The Dubai government and its affiliated firms owe non-financial Japanese companies roughly $7.5 billion in credit that had not been
collected as of Oct. 31, a study by the Japanese government showed.

The study covered 18 projects that involved Japanese general contractors, trading companies and electric machinery manufacturers, the Nikkei business daily.

The figure includes public works projects, such as subways and roads, commissioned by the Dubai government, it said. It does not include bank loans.

It said some $1 billion of the accounts receivable have gone unpaid past their due dates, with some more than a year overdue.



FOLLOW UP:

Dubai adopts DIFC insolvency law for emirate
Dubai will adopt the insolvency code used in the Dubai International Financial Center for use in the emirate and establish a tribunal to hear cases submitted against its debt-laden holding firm Dubai World, the government said on Monday.

The policy change came in the form of a decree issued by Mohammed Bin Rashid al-Maktoum, the ruler of Dubai.


Guambat hasn't a clue what this means or its implications for anything. Stay tuned. As soon as Guambat hears/reads anything, he's certain to make a hash of it.

MORE FOLLOW UP:

Dubai World Promises, but the Damage May Be Done
In the event that a deal with creditors can't be reached, the new law promulgated Monday could provide a legal system of arbitration, in which lenders could, in theory, pursue asset sales or other attempts at getting their money back.

The law establishes a panel of judges who would preside over debt and corporate-restructuring disputes, Dubai said.

The new law is untested, and isn't likely to reassure other bond holders.

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