Dubai Economic Crisis Looms

DUBAI (AP) – Dubai's leader tried to calm panicky investors yesterday as regional markets tumbled for a second day on news that the city-state's chief conglomerate needs to delay payments on its $60 billion debt for six months.

Government-owned investment company Dubai World — the United Arab Emirates' main engine of growth — gave anxious investors the first bit of clarity they were hoping for on how it might meet its debt obligations. It said it had begun discussions with creditors on $26 billion of its debt that would include restructuring about $6 billion.

The conglomerate is involved in international projects from Gulf banks and ports in 50 countries to luxury retailer Barney's New York and a grandiose six-tower hotel-entertainment complex in Las Vegas. Its potential for a debt default sent jitters through world markets on concerns of new setbacks for Dubai World's large international bank creditors just as they are recovering from the global financial crisis.

Dubai is one of seven highly autonomous statelets that make up the United Arab Emirates and the crisis has sent the UAE's two biggest markets into a tailspin. The Dubai Financial Market sank another 5.61 percent on yesterday after plunging 7.3 percent on Monday and Abu Dhabi's bourse closed down 3.57 percent following an 8 percent slide a day earlier.

Dubai's ruler, Sheik Mohammed bin Rashid Al Maktoum, tried to reassure investors in his first public statement about Dubai World's debt crisis.

"Our economy is strong and solid and consistent," he told Al-Arabiya satellite television, adding markets were overreacting because of "a lack of understanding about what is happening in Dubai." He did not elaborate.

UAE President Sheik Khalifa bin Zayed Al Nahyan also maintained his country's economy was healthy.

However, analysts say Dubai World's debt crisis is a symptom of a broader malaise in the city-state. Dubai has no oil resources. But for the past decade, it has been the freewheeling boomtown, racking up debt as it built extravagant artificial residential islands, malls complete with indoor ski slopes and the world's tallest tower.

The troubles raised concerns in international markets that the large international banks that extended credit to the conglomerate could now face a new setback if it defaults just as those big banks are starting to emerge from the global financial crisis. The big fear is that Dubai's problems could be indicative that the global recovery is not on as solid a footing as many had hoped and there could be other toxic debt problems still to come in developing countries.

World stock markets rose sharply yesterday on the announcement that Dubai World was in talks to restructure a large chunk of its business. Investors were eagerly awaiting clarity on how it would deal with its debts, specifically reassurances that the company was sitting down with creditors to refinance its debt.

Saurabh Dhall, an independent broker in Dubai, said there is a lot of uncertainty about how the debt crisis will play out. He said it was raising credibility concerns both about Dubai's ability to stand behind its debt obligations and the possibility, however, remote, that the crisis could impact broader government debt in the UAE.

"The major concern is not so much the dollar amount ... of the payments, it's the concern about how this will affect credibility," he said.

Investors were not reassured on Monday when Dubai officials indicated they had washed their hands of Dubai World's debts, arguing that it was an independent company that happened to be owned by the emirate.

The news rattled investors and raised more questions about whether neighboring Abu Dhabi, the oil-rich seat of the UAE's federal government, would step in with a bailout of sort and what such a step would mean for Dubai.

Dubai World said yesterday in a statement the restructuring would include about $6 billion in Islamic bonds issued by its real estate arm, Nakheel PJSC, the company behind Dubai's iconic, palm-shaped artificial islands. About $3.5 billion of the bonds come due on Dec. 14, and Nakheel was viewed as the litmus test for how Dubai World will deal with its debt woes.

It did not deal with the broader issue of how it would meet its entire crushing debt burden.

Dubai World's statement yesterday said the restructuring would include Dubai World and certain subsidiaries, including Nakheel World and Limitless World. Excluded from the talks are debts from Infinity World Holding, Istithmar World and Ports & Free Zone World, which includes ports and terminal operator DP World, Economic Zones World, P&O Ferries and Jebel Ali Free Zone.

The conglomerate said all those subsidiaries are on "stable financial footing," and in a statement posted on the Nasdaq Dubai Web site, Jebel Ali Free Zone said it paid a roughly $2 billion Islamic bond, or sukuk, on time yesterday.

Other UAE markets also felt the weight of Dubai's problems. Qatar's bourse fell 8.27 percent while Kuwait's was off 2.71 percent on yesterday.

Markets in the Emirates will be closed Wednesday and Thursday for a national holiday and will reopen Sunday after the weekend.

Financial Week in Review: Nov. 9-13, 2009

Monday

Kraft (KFT) officially went hostile. The food conglomerate put out a hostile bid of $16.3 billion for Cadbury (CBY) on Monday. Cadbury rejected the offer as “derisory,” however. The company said the new proposal is “of less value and lower than the current Cadbury share price.”

Plummeting Dollar Dept.: The value of the U.S. dollar fell to a 15-month low, propelling the Dow Jones Industrial Average to a new 2009 high of 10227. The average rose 204 points. And following in its footsteps, crude oil hit $80 a barrel and gold rose to an all-time high, above $1100 an ounce.

Tuesday

AIG (AIG), making progress in its plan to restructure, will likely be able to repay its government aid, according to Moody’s. AIG recently posted a quarterly profit for the second time in a row; however, its business is still weak. The results do show stabilization, though, according to Moody’s, making it likely that taxpayers will see their investment in the company returned.

Meanwhile, two Bear Stearns hedge fund managers were acquitted by a jury Tuesday. The two senior executives, Ralph Cioffi and Matthew Tannin, were charged with lying to investors during the subprime mortgage crisis. The alleged fraud, according to prosecutors, cost investors roughly $1.6 billion and almost destroyed the investment bank itself, before JPMorgan Chase (JPM) bought it.

Wednesday

The Wall Street Journal reported that AIG CEO Robert Benmosche was considering leaving the company, just three months after taking the position, frustrated by the pay regulations being imposed on the insurer (as well as several other government aid-receiving institutions). Benmosche later in the day wrote a memo to his employees, reassuring them he is “committed” to the company.

Meanwhile, Hewlett-Packard (HPQ) said it plans to buy 3Com, a computer networking company, Wednesday. In a $2.7 billion deal that’s been approved by both companies’ boards, HP will pay $7.90 a share.

And the Dow hit another recent high Wednesday afternoon, rising 44 points to close at 10291, the highest level it’s been at in 13 months.

Thursday

Intel (INTC) and Advanced Micro Devices (AMD) hugged it out Thursday, ending their antitrust and patent disputes in a settlement from Intel. Intel will pay $1.25 billion to AMD, and AMD agreed to drop all outstanding litigation against Intel. However, this didn’t prevent New York Attorney General Andrew Cuomo from dropping his antitrust suit against Intel. He said his suit is on behalf of New Yorkers who he said have been hurt because of Intel’s alleged monopolistic abuses.

Credit Troubles Dept.: The Federal Housing Administration said its capital reserves have tanked, falling below the 2% requirement mandated by Congress to just 0.53%. Heavy loan losses have hurt the agency, but it said “under most economic scenarios” it would be able to maintain reserves “above zero.” Many worry that the administration could be next in line to receive a government bailout.

Friday

Friday began with a disappointing report on consumer sentiment from teh University of Michigan. The index fell to 66.0, its weakest level in over three months, amid pessimism for job opportunities. The reading was well below the 71.0 economists were expecting.

Two former employees of Bernie Madoff were arrested Friday on charges of falsifying records. Computer programmers Jerome O’Hara and George Perez allegedly created programs and altered account records in order to hide Madoff’s scheme. They both face a maximum of 30 years in prison and fines of over $5 million, if found guilty.

Copyright 2009 by FoxBusiness.com

Tech gizmo gifts for $299 or less

Consumers looking to buy electronics for holiday gifts won't have to break the bank this season.

Droid: $199, with 2-year contract

The Droid's "iDon't / Droid does" marketing campaign has raised quite a few eyebrows because of its seemingly preposterous suggestion that Verizon's new Motorola smartphone can hold its own against Apple's iconic iconic iPhone.

But the initial reviews are in, and they've been largely positive -- some testers have even said they were pleasantly surprised with the Droid's functionality. It's the first phone to use Google's new open-source Android 2 operating system; it has 10,000 apps and a pull-out physical keyboard.

Though no one expects the Droid to overtake the iPhone in sales or market share, the Droid could serve as a nice alternative to those who prefer Verizon's much stronger 3G network to the iPhone's shaky 3G network offered exclusively by AT&T.

Still, the Droid isn't for everyone. Despite a healthy collection of apps, the iPhone blows the Droid away with 100,000 applications. And the second generation iPhone 3G can be had for $99 for those looking for a less expensive smartphone.


HP Mini 110 series: $299

Laptops are sooo 2007. Their cheaper, smaller, lighter cousins -- netbooks -- are getting better, faster and more practical.

According to James Brehm, consumer electronics analyst with Frost & Sullivan, consumers bought about 500,000 netbooks in 2007, 12 million in 2008 and will likely buy 30 million in 2009.

Most netbooks are still priced at around $350 or more, but some are creeping down below $300 for the holiday season.

One powerful option in the sub-$300 range is the HP mini 110 series, which sports a 160 GB hard drive, 1 GB of memory, Intel Atom processor, built-in Web cam and microphone. Not bad for a 2.3 lb. computer.

But, as with all netbooks, there are a few drawbacks. The HP mini is definitely not a primary PC, and there's no optical drive, which means you can't use it to watch DVDs. And if you're looking for a netbook that can run Windows 7 Starter Edition, look elsewhere -- the HP Mini 110 series is stuck on Windows XP.


PlayStation 3 120GB: $299

The PlayStation 3 isn't the cheapest video game system out there, but its recent $100price cut made it the fastest-selling one.

Sony's third generation PlayStation has had a lot of things going for it since its late-2006 release: in addition to its high-definition graphics, and fantastic game selection, it also sports a Blu-ray disc player.

But the initial $599 price tag ($499 for the smaller version) was steep, even for the most passionate gamers. As a result, the Nintendo Wii and Microsoft XBox 360 left PS3 sales in the dust.

Now, a PS3 can be had for under $300. That's not bad for just a Blu-ray player, never mind a video game system.

If you're looking for something less expensive, the Wii and Xbox 360 Arcade Console are now both available for $199, after both recently sported price cuts.


Flip Ultra: $149

Video cameras have seemingly been added to every handheld device recently, but few cell phone cameras have the clarity and ease of use of a Flip video camera.

The cool new Flip cameras sport just a few buttons, enabling users to simply point, shoot, and start recording hours of video. Want that video in high definition? $50 more will get you a Flip Ultra HD.

When you're done, you can flip the USB connector, plug the camera into your computer, and load your videos onto your computer in minutes. As a result, consumer electronics analysts say the Flip will likely drive the nail into the coffin in what was once a popular camcorder market.

But the Flip hasn't yet won the battle for home movie making. With phone camera resolution steadily improving, multi-use devices like iPods now sporting video cameras, and smartphones gaining the ability to edit videos, it is still left to be seen whether consumers will continue to shell out funds for a separate device.
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Source: CNNMoney.com