Dubai credit crunch: Red alert for these companies!
Today's Financial News - Posted November 27, 2009
These companies share prices will continue to suffer from Dubai’s credit default: ING Group (NYSE:ING), Woori Financial Holdings (NYSE:WF), Shinhan Financial Group Co., Ltd. (NYSE:SHG), HSBC Holdings plc (NYSE:HBC), Sony Corporation (NYSE:SNE), Deutsche Bank AG (NYSE:DB), MGM Mirage (NYSE:MGM), Standard Chartered PLC (LON:STAN), Royal Bank of Scotland Group plc (NYSE:RBS), and Barclays PLC (NYSE:BCS)
by J. Christoph Amberger
Baltimore, MD TFN: Stocks took a drubbing during today’s foreshortened trading day as investors reacted to news that Dubai World, a state-owned “sovereign” investment fund, asked creditors for an extension on billions of dollars worth of debt payments due next month.
The timing was perfect: American investors were either in a turkey-induced stupor — or swhaking down TJ Maxx for retail bargains.
In North America, losses were moderate. The Dow Jones industrial average lost 155 points. In Asia, where investors were alert and awake, Hong Kong’s Hang Seng index closed down almost 5% for the day.
Among the biggest losers were bankers with exposure to Dubai:
Dutch banker ING Group (NYSE:ING) — down almost 20%, Woori Financial Holdings (NYSE:WF) — down 14%, Shinhan Financial Group Co., Ltd. (NYSE:SHG) was down 9%, and HSBC Holdings plc (NYSE:HBC) — Dubai World’s biggest loan arranger since January 2007– closed down almost 6%.
Dubai, one of seven emirates that make up the United Arab Emirates, had borrowed $80 billion to fuel a construction boom that created indoor skiing arenas, a kilometer-high skyscraper, the largest airport in the world, and residential developments built on artificial reefs and islands that look like palm trees from the vantage point of Google Earth.
Dang goes that fully air-conditioned, self-cleaning, lavender-flavored beach I’ve been dreaming about!
Harbinger of defaults to come?
Compared to the new debt a reckless U.S. Congress has been taking on, Dubai World’s current $59 billion liability looks like chump change. Given the city state’s incestuous relations with other Arab sovereign wealth funds, I have no doubt the issue may be resolved, either by internecine loans or the sale of assets.
But this will have a domino effect on the company’s owned by Dubai Istithmar: The fund holds an undisclosed amount of Sony Corporation (NYSE:SNE) shares, owns Barneys department stores, has a 3.2% stake in troubled EU aircraft maker EADS, and owns 2.2% of Deutsche Bank AG (NYSE:DB).
It also committed $5 billion to MGM Mirage (NYSE:MGM) — an interesting choice for the government funds of an Islamic nation where all gambling and casinos are prohibited.
All those companies have shown significant declines in recent days. Because they’re potentially on the block.
Even more at risk are the creditors: UK banks such as Standard Chartered PLC (LON:STAN), Royal Bank of Scotland Group plc (NYSE:RBS), and Barclays PLC (NYSE:BCS) are exposed with a total of more than $30 billion in default risk.
All those companies are on our Red Alert List
Attracting foreign companies
Dubai lacks oil and gas reserves. The plan behind taking on all that debt was to create a “sustainable” economy — independent of natural resources. This was to be achieved by making the emirate a world-class banking and tourism center at the nexus of the Western world and Asia.
For the last couple of years, this seemed to work out quite nicely. There’s barely single young German professional I know who didn’t think it necessary to do an internship in Dubai!
Dubai’s business and tax environment is extremely attractive to foreign corporations. They managed to lure Halliburton Company (NYSE:HAL) to move headquarters (and its global tax base) out of Houston.
If Dubai’s entrepreneurial spirit prevails, the emirs will use the crisis — and their boatloads of unoccupied commercial real estate — to aggressively court European and American businesses looking to escape predatory taxation of their neo-collectivist governments!
Dubai has already seen its commercial real estate prices collapse by 50% over their 2008 highs. Some prestige projects have been suspended due to financing problems. The sovereign wealth fund may have to unload considerable amounts of property at distressed prices.
In a globalized world, this will drive the price of all commercial real estate lower.
We’re adding CB Richard Ellis Group, Inc. (NYSE:CBG), Grubb & Ellis Company (NYSE:GBE), and Jones Lang LaSalle Incorporated (NYSE:JLL) to our Red Alert List.
Next Article: Forget Dubai: ValueVision is bigger news
Posted by J. Christoph Amberger · Filed Under Featuring..., International Investing
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November 30th, 2009 at 1:29 pm
This is the beginning of the end. It may take 50-100 years to work itself out, but this is the “point of no return” as the saying goes. From this point on, for the next 100 years, only the very very smart and very clever will get rich. Would that I could be in exactly the same location to see who are the winners and the losers. However, I am 69 years old already and don’t even remotely think I’ll live to see how things have changed……in 50 years. Tell my children when you observe what changes have happened (planned or not). I don’t think it’s going to be pretty.
RXN