Posted by Tracy Alloway on Dec 01 15:45.
Here’s some useful data from ratings agency Fitch - a breakdown of how the capital of banks in the United Arab Emirates is likely to be impacted by the Dubai World debt restructuring.
It’s basically an updated version of Fitch’s capital sensitivity test for UAE banks, which the rating agency first conducted in September 2009:
The test (for those interested) assumes two years of ’stressed’ pre-impairment profit of 80 per cent of 2008 audited profits, and zero growth in risk-weighted assets. The test also assumes coverage of non-performing loans at 100 per cent and earnings retained rather than paid out as dividends.
Thus, according to Fitch:
These developments will add pressure on Fitch’s Individual Ratings for UAE banks and the agency will closely monitor developments and will comment further as more information becomes available. Most of the Long‐Term Issuer Default Ratings assigned to the UAE banks factor in support being provided from the UAE authorities, and as Fitch’s current view of the willingness to provide support has not changed, there are no additional Long‐Term IDR actions aside from the rating actions taken on 27 November 2009 (Dubai Bank, TAIB Bank, Tamweel; see www.fitchratings.com).
While the banks with the greater exposure concentration to Dubai generally are likely to be the most exposed — directly and indirectly — to DW and Nakheel, the larger banks in the UAE are unlikely to have avoided having exposures, given the size of their balance sheets and franchise across the whole of the UAE. To date, National Bank of Abu Dhabi (NBAD; rated ‘AA−’/Stable Outlook) is the only UAE bank to publicly acknowledge its exposure to the DW group, at USD345m, which is modest relative to its earnings and equity base.
. . .While the last reported date NPL and capital levels appeared comfortable across the sector, the results of the sensitivity test show that Dubai‐based banks’ capital positions were more sensitive to rapidly rising NPL trends. In particular Dubai Bank (rated ‘BBB−’/Negative Outlook) is clearly the most sensitive, with the test showing that NPLs would only have to rise by a moderate double digit percentage for a capital ratio of 12% to come under threat. Dubai Islamic Bank (Support Rating: ‘1’) is next, with a 166% increase required, however this is using end‐2008 NPLs, which are certainly higher now and so the absorption ability is lower than this. Most of the Abu Dhabi banks (which benefited from capital injected earlier in 2009) are less sensitive, with the exception of Abu Dhabi Commercial Bank (ADCB; Support Rating: ‘1’) whose 12% ratio comes under threat if its NPLs rise by 80%. The smaller banks in the other emirates also appear to be less sensitive than Dubai’s banks and ADCB.
Although, in general bank capital ratios have strengthened during 2009 as the institutions reduced cash dividends, slowed loan growth, converted federal deposits into Tier 2 capital and in some cases received direct injections of Tier 1 capital from their respective emirates’ governments, Fitch expects ongoing pressure on capital ratios. If rising impairments over the next six months are largely limited to DW and its related entities, the impact should be manageable for the banking sector, although such an outcome remains highly uncertain.
The reference to assumed UAE state support being factored into Fitch’s UAE bank ratings is interesting given that some seem to have wrongly assumed that the Nakheel sukuk also had implicit government support. Indeed, ‘implicit’ state support for some bank capital instruments seems to be dying a slow death in Europe, with Fitch now supposing that government support for banks does not extend to hybrid bondholders.
Of course, the UAE on Sunday pledged to ‘stand behind‘ its banks, and provided them with an uncapped liquidity facility, so state support does look to be a reasonable given for now. But nevertheless, according to Fitch, there are some headwinds facing UAE banks:To address any potential liquidity pressures for the sector, on 29 November 2009 CBUAE put in place an uncapped liquidity facility for use by both local and foreign banks operating in the UAE at a rate of 0.5% over the local interbank interest rate. The damage to Dubai’s reputation by DW’s announcement may negatively impact the banking sector’s ability to return to the debt capital markets following NBAD, ADCB and First Gulf Bank’s recent successful issuances. Emirates NBD PJSC (rated ‘A+’/Stable Outlook) remains one of the biggest issuers by value and had said that it would look to issue in early 2010, which may now be delayed and hence reduces its options for repaying a total of AED7bn of debt due during 2010. Loans/deposits ratios for the largest banks remain above 100%, putting further pressure on the banks’ ability to lend to support future economic recovery.
Related links:
Dubai world - the $26bn debt workout begins - FT Alphaville
What next for Nakheel? - FT Alphaville
The issue of shariah compliance and the Nakheel sukuk - FT Alphaville
What can Nakheel sukuk holders expect in a default? - SharingRisk dot Org
2009年12月16日 星期三
Trichet and the Dubai spectre in low-speed Euroland
Posted by Gwen Robinson on Dec 04 09:43. Comment.
With the Dubai noise over the past week, it is worth asking where similar debt concerns might suddenly shock markets, says CLSA’s Christopher Wood in his Greed & Fear newsletter. The most vulnerable, in his view, More…
With the Dubai noise over the past week, it is worth asking where similar debt concerns might suddenly shock markets, says CLSA’s Christopher Wood in his Greed & Fear newsletter. The most vulnerable, in his view, remain the fringe parts of Europe - namely, Portugal, Italy, Ireland, Greece and Spain (sometimes known collectively as the PIIGS) - where bond yields spreads have begun rising again in recent weeks.
Indeed, such concerns are clearly haunting the ECB’s Jean Claude Trichet, despite his Thursday announcement that the next — and final — instalment of funds for banks would not be fixed at an ultra-cheap 1 per cent but indexed to future changes in the main policy rate.
Even so, as BreakingViews puts it on Friday, the ECB’s president could hardly have been more keen to stress that this did not signal any tightening in monetary policy. Liquidity, the central banker said, would remain “extremely abundant”.
Cleary, the ECB’s overriding concern is the weakness of Greece, Ireland, Portugal and Spain, and the prospect that their sputtering economies may stall. Afterall, notes BreakingViews, the eurozone’s annual broad money growth dropped lower in October, to just 0.3 per cent, and while eurozone lending to households rose in both September and October, it is down year-on-year, as is bank lending to non-financial corporations.
Eurozone companies rely heavily on banks, rather than capital markets, for funding, so the weakness in lending does not augur well. Rainer Bruederle, Germany’s economy minister, warned this week that German firms face a credit crunch. Concludes BreakingViews (our emphasis):
Following Dubai World’s unpleasant surprise, the markets are looking with more nervousness at Greece’s financing needs. Ireland, deep in deflation, is cutting spending hard. The level of financial frailty varies. But from Germany to Greece, the only eurozone fizz is in financial markets, not in real economies. Trichet and his team look like staying in the loose policy camp throughout 2010.
Meanwhile, warns CLSA’s Wood, the average spread of 10-year government bond yields in the PIIGS over German bunds has risen from a recent low of 85bp on November 12 to 116bp on November 26 and 106bp on Wednesday. And CDS spreads on the “weak underbelly of Euroland” have also been rising again with Greece leading the march upwards. Wood continues (our emphasis):
Thus, Greece’s budget deficit is expected to reach 12.7% of GDP this year, more than four times the EU deficit limit of 3% of GDP, while the country’s gross government debt is forecast by the European Commission to rise to 125% of GDP next year. It is also worth noting the growing divergence between the PIIGS CDS spreads and those of Germany. Greece’s five-year CDS spread has risen from a recent low of 100bp reached in August to 208bp on November 26 and 171bp at present, while the CDS spread on German bunds was virtually flat over the same period at 22bp.
“Fortress Euroland” has so far withstood the pressures of last year’s global financial crisis. But in Wood’s view, it is “premature to declare victory”. He concludes:The Baltic states remain a high-stress zone going through dramatic GDP contractions. Estonia, Latvia and Lithuania real GDP fell by 15.3%, 18.4% and 14.2% YoY respectively in 3Q09. While as with Abu Dhabi, it remains unclear if Germany is really willing to bail out the PIIGS 100 percents on the dollar if government debt concerns come to a head.
Meanwhile, it goes without saying that the euro is now supremely overvalued to the benefit of Asian exporters to the Euroland region. Clearly, the euro can get more overvalued so long as the rally in risk assets continues funded by the US dollar carry trade. That means mounting pressure which Euroland can do little about given its complete lack of credibility at the political level.
Related links:The ECB goes for indexation - Money-Supply blog
Euro boosted by ECB liquidity signals - FT
ECB spurns IMF with early exit strategy - FT
PIIGS to S&P slaughter - FT Alphaville.
With the Dubai noise over the past week, it is worth asking where similar debt concerns might suddenly shock markets, says CLSA’s Christopher Wood in his Greed & Fear newsletter. The most vulnerable, in his view, More…
With the Dubai noise over the past week, it is worth asking where similar debt concerns might suddenly shock markets, says CLSA’s Christopher Wood in his Greed & Fear newsletter. The most vulnerable, in his view, remain the fringe parts of Europe - namely, Portugal, Italy, Ireland, Greece and Spain (sometimes known collectively as the PIIGS) - where bond yields spreads have begun rising again in recent weeks.
Indeed, such concerns are clearly haunting the ECB’s Jean Claude Trichet, despite his Thursday announcement that the next — and final — instalment of funds for banks would not be fixed at an ultra-cheap 1 per cent but indexed to future changes in the main policy rate.
Even so, as BreakingViews puts it on Friday, the ECB’s president could hardly have been more keen to stress that this did not signal any tightening in monetary policy. Liquidity, the central banker said, would remain “extremely abundant”.
Cleary, the ECB’s overriding concern is the weakness of Greece, Ireland, Portugal and Spain, and the prospect that their sputtering economies may stall. Afterall, notes BreakingViews, the eurozone’s annual broad money growth dropped lower in October, to just 0.3 per cent, and while eurozone lending to households rose in both September and October, it is down year-on-year, as is bank lending to non-financial corporations.
Eurozone companies rely heavily on banks, rather than capital markets, for funding, so the weakness in lending does not augur well. Rainer Bruederle, Germany’s economy minister, warned this week that German firms face a credit crunch. Concludes BreakingViews (our emphasis):
Following Dubai World’s unpleasant surprise, the markets are looking with more nervousness at Greece’s financing needs. Ireland, deep in deflation, is cutting spending hard. The level of financial frailty varies. But from Germany to Greece, the only eurozone fizz is in financial markets, not in real economies. Trichet and his team look like staying in the loose policy camp throughout 2010.
Meanwhile, warns CLSA’s Wood, the average spread of 10-year government bond yields in the PIIGS over German bunds has risen from a recent low of 85bp on November 12 to 116bp on November 26 and 106bp on Wednesday. And CDS spreads on the “weak underbelly of Euroland” have also been rising again with Greece leading the march upwards. Wood continues (our emphasis):
Thus, Greece’s budget deficit is expected to reach 12.7% of GDP this year, more than four times the EU deficit limit of 3% of GDP, while the country’s gross government debt is forecast by the European Commission to rise to 125% of GDP next year. It is also worth noting the growing divergence between the PIIGS CDS spreads and those of Germany. Greece’s five-year CDS spread has risen from a recent low of 100bp reached in August to 208bp on November 26 and 171bp at present, while the CDS spread on German bunds was virtually flat over the same period at 22bp.
“Fortress Euroland” has so far withstood the pressures of last year’s global financial crisis. But in Wood’s view, it is “premature to declare victory”. He concludes:The Baltic states remain a high-stress zone going through dramatic GDP contractions. Estonia, Latvia and Lithuania real GDP fell by 15.3%, 18.4% and 14.2% YoY respectively in 3Q09. While as with Abu Dhabi, it remains unclear if Germany is really willing to bail out the PIIGS 100 percents on the dollar if government debt concerns come to a head.
Meanwhile, it goes without saying that the euro is now supremely overvalued to the benefit of Asian exporters to the Euroland region. Clearly, the euro can get more overvalued so long as the rally in risk assets continues funded by the US dollar carry trade. That means mounting pressure which Euroland can do little about given its complete lack of credibility at the political level.
Related links:The ECB goes for indexation - Money-Supply blog
Euro boosted by ECB liquidity signals - FT
ECB spurns IMF with early exit strategy - FT
PIIGS to S&P slaughter - FT Alphaville.
Tuesday Dubai doom and gloom
Posted by Tracy Alloway on Dec 08 12:00.
Dubai doom and gloom comes in the form of two things on Tuesday morning.
First — a mass Downgrade of Dubai Inc. companies by Moody’s, the text of which is below:
Moody’s announces further downgrades to Dubai Inc. corporatesDIFC, December 08, 2009 — Moody’s Investors Service today downgraded all six Dubai government-related issuers (GRIs). This rating action follows recent comments and statements from government officials, which cause us to believe that no meaningful government support should be assumed forany entity that is not directly part of or formally guaranteed by thegovernment. As a result, Moody’s has reduced the government supportassumptions for all six issuers. All ratings now reflect the respectivecompany’s stand-alone credit profile (baseline credit assessment) withthe exception of Dubai Electricity & Water Authority (DEWA) and DIFCInvestments, whose revised ratings include one notch uplift forgovernment support recognising their stronger strategic linkage toDubai’s core economic development policies.Moody’s has also downgraded various baseline credit assessments toreflect (1) increased liquidity challenges in a tougher financingenvironment that we expect will continue for a protracted period, and (2)the longer term implications thereof on Dubai’s economy.Ratings affected by today’s rating actions include the following:- DP World issuer and debt ratings were downgraded to Ba1 from Baa2;- Dubai Electricity & Water Authority (DEWA) issuer and debt ratings weredowngraded to Ba2 from Baa2;- Jebel Ali Free Zone (JAFZ) issuer and debt ratings were downgraded toB1 from Ba1;- Dubai Holding Commercial Operations Group (DHCOG) issuer and debtratings were downgraded to B1 from Ba2;- Emaar Properties issuer ratings were downgraded to B1 from Ba2;- DIFC Investments (DIFCI) issuer and debt ratings were downgraded to B2from Ba1.All ratings remain on review for further downgrade.Since the announcement by the Dubai government on November 25 that it would restructure the debt of Dubai World and request a standstill onfinancings of some of its liabilities, the government has further clarified its position towards GRI obligations. In recent statements the government has highlighted that it sees no legal obligation to support non-guaranteed debt of its GRI’s. GRI’s that are able to demonstrate aviable business model and an ability to service their debt obligations over the long-term remain eligible for support from the government’sFinancial Support Fund. Taking into account the government’s most recent position, Moody’s no longer believes it appropriate to assume timelysupport that results in any uplift for the ratings of four of the GRIs.We view the probability of support for DEWA and DIFC as being diminishedbut sufficient to lift these ratings by one notch . . .
The second dose comes courtesy of Bloomberg, which reports that Nakheel managed to jump from a 2.65bn-dirham profit in the first half of 2008, to a staggering 13.4bn-dirham loss in the first-half of 2009.
From the newswire:Dec. 8 (Bloomberg) — Nakheel PJSC, the Dubai World-owned property developer seeking to renegotiate debt, had a first-half loss of 13.4 billion dirhams ($3.65 billion) as revenue fell and it wrote down the value of land and property, according to a document obtained by Bloomberg News.The loss for the company, which is building palm tree-shaped islands off the emirate’s coast, compared with a year-earlier profit of 2.65 billion dirhams, according to itsfinancial statement for the six months to June. Revenue fell 78 percent to 1.97 billion dirhams. A spokesman for Dubai World,Nakheel’s parent, declined to comment.
Ouch.
Emerging markets — and European banks — are currently (pretty much) down across the board.
Related link:
Dubai World restructuring to take months - FT
Dubai doom and gloom comes in the form of two things on Tuesday morning.
First — a mass Downgrade of Dubai Inc. companies by Moody’s, the text of which is below:
Moody’s announces further downgrades to Dubai Inc. corporatesDIFC, December 08, 2009 — Moody’s Investors Service today downgraded all six Dubai government-related issuers (GRIs). This rating action follows recent comments and statements from government officials, which cause us to believe that no meaningful government support should be assumed forany entity that is not directly part of or formally guaranteed by thegovernment. As a result, Moody’s has reduced the government supportassumptions for all six issuers. All ratings now reflect the respectivecompany’s stand-alone credit profile (baseline credit assessment) withthe exception of Dubai Electricity & Water Authority (DEWA) and DIFCInvestments, whose revised ratings include one notch uplift forgovernment support recognising their stronger strategic linkage toDubai’s core economic development policies.Moody’s has also downgraded various baseline credit assessments toreflect (1) increased liquidity challenges in a tougher financingenvironment that we expect will continue for a protracted period, and (2)the longer term implications thereof on Dubai’s economy.Ratings affected by today’s rating actions include the following:- DP World issuer and debt ratings were downgraded to Ba1 from Baa2;- Dubai Electricity & Water Authority (DEWA) issuer and debt ratings weredowngraded to Ba2 from Baa2;- Jebel Ali Free Zone (JAFZ) issuer and debt ratings were downgraded toB1 from Ba1;- Dubai Holding Commercial Operations Group (DHCOG) issuer and debtratings were downgraded to B1 from Ba2;- Emaar Properties issuer ratings were downgraded to B1 from Ba2;- DIFC Investments (DIFCI) issuer and debt ratings were downgraded to B2from Ba1.All ratings remain on review for further downgrade.Since the announcement by the Dubai government on November 25 that it would restructure the debt of Dubai World and request a standstill onfinancings of some of its liabilities, the government has further clarified its position towards GRI obligations. In recent statements the government has highlighted that it sees no legal obligation to support non-guaranteed debt of its GRI’s. GRI’s that are able to demonstrate aviable business model and an ability to service their debt obligations over the long-term remain eligible for support from the government’sFinancial Support Fund. Taking into account the government’s most recent position, Moody’s no longer believes it appropriate to assume timelysupport that results in any uplift for the ratings of four of the GRIs.We view the probability of support for DEWA and DIFC as being diminishedbut sufficient to lift these ratings by one notch . . .
The second dose comes courtesy of Bloomberg, which reports that Nakheel managed to jump from a 2.65bn-dirham profit in the first half of 2008, to a staggering 13.4bn-dirham loss in the first-half of 2009.
From the newswire:Dec. 8 (Bloomberg) — Nakheel PJSC, the Dubai World-owned property developer seeking to renegotiate debt, had a first-half loss of 13.4 billion dirhams ($3.65 billion) as revenue fell and it wrote down the value of land and property, according to a document obtained by Bloomberg News.The loss for the company, which is building palm tree-shaped islands off the emirate’s coast, compared with a year-earlier profit of 2.65 billion dirhams, according to itsfinancial statement for the six months to June. Revenue fell 78 percent to 1.97 billion dirhams. A spokesman for Dubai World,Nakheel’s parent, declined to comment.
Ouch.
Emerging markets — and European banks — are currently (pretty much) down across the board.
Related link:
Dubai World restructuring to take months - FT
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