Dubai Brokerages Shut as Trading Falls to 4-Year Low

(Bloomberg) -- Stock brokers in the United Arab Emirates are struggling to make ends meet as trading volumes tumble to the lowest in four years, forcing some to close.

The number of brokerages in the country may drop to as low as 55 from 81, according to Shuaa Securities LLC, the brokerage unit of the U.A.E.’s biggest investment bank. Twelve firms, from Abu Dhabi-based Makaseb Islamic Financial Services to Dubai- based IFA Securities LLC, filed requests to the Securities and Commodities Authority to halt operations this year as costs rose and revenue fell. Seven shut or suspended operations last year and three in 2008.

Brokerages are closing after a surge in share prices fueled by declining borrowing costs and rising oil prices faltered in 2006. Dubai amassed more than $100 billion of debt as it transformed itself into a financial hub and triggered a credit crisis last year after real-estate prices slumped. The average daily volume of shares traded in Dubai has slumped to 172 million this year from 477 million in the year-earlier period.

“Low volumes are making it extremely difficult for brokerages to survive,” Mohammed Ali Yasin, chief executive officer of Shuaa Securities, said on July 20 in Abu Dhabi. “Many are considering closure as the only option.”

Makaseb, ranked on the website of the Dubai Financial Market as the 17th biggest brokerage by value traded in January, asked the SCA for a year-long freeze on its operations, Managing Director Hatim el-Atabani said Aug. 4. The company cut as much as 60 percent of its workforce in the past year, el-Atabani said in an interview from Abu Dhabi.

‘Unwise’

“We thought it would be unwise to continue operations and incur losses, especially when we don’t see a turnaround happening soon,” he said.

IFA, the brokerage founded by Kuwait’s International Financial Advisors KSCC, closed on July 4, Emad Eldin Abbas, operations manager, said in an interview in Dubai the following day. “The costs of operations were too high considering the current state of the market.”

This year, five brokerages in the emirates got approval to close and have their licenses suspended for a year, said Ibrahim Obeid Al-Zaabi, deputy chief executive officer for licensing, supervision and enforcement at the regulator SCA.

Dubai Financial Market PJSC, the only stock market on the Arabian Peninsula to sell shares to the public, said on July 24 that second-quarter profit dropped 80 percent because of plunging trading volumes.

Bear Market Rallies

Dubai’s benchmark index of 32 stocks has slumped 82 percent to 1,501.25 today from a record 8,494.63 in November 2005. Abu Dhabi’s measure has plunged 60 percent from a high of 6,237.98 in May 2005.

“The bull market cycle started ending in late 2005, and since then we’ve only seen bear market rallies,” Nabil al Rantisi, senior vice president of brokerage at Dubai-based Rasmala Investment Bank Ltd., said in response to e-mailed questions on July 20.

In 2004 and 2005, investors believed lending will grow along with demand for real estate, Rantisi said. Dubai property prices have slumped more than 50 percent from their peak in August 2008 as mortgages dried up, according to estimates from Colliers International. Local benchmarks are dominated by real- estate companies and banks.

Non-Performing Loans

Bank lending in the U.A.E. grew more than 30 percent a year from 2005 to 2008, according to the central bank. It increased 0.8 percent in the first six months of this year. The average ratio of non-performing loans for the nine largest U.A.E. banks more than doubled last year, according to a Fitch Ratings report in June.

“Under current market conditions, the smaller firms probably get an average of 3 million dirhams ($817,000) traded a day,” said Waleed Al Khateeb, senior finance manager at Dubai- based Daman Securities LLC, on June 30. “To break even, these brokerages need no less than 15 million dirhams. Even bigger brokerages make little profit on good trading days.”

The average daily value of shares traded in Dubai fell almost 50 percent this year to 329 million dirhams from the year-earlier period, according to data compiled by Bloomberg. In Abu Dhabi, it tumbled to 133 million dirhams from 275 million dirhams last year.

Abu Dhabi-based Al Fardan Financial Services is bucking the trend and plans to double the number of brokers by year-end even after it reported a first-quarter loss of 588,958 dirhams.

‘A Matter of Time’

“Our view is that it is only a matter of time until the market improves,” General Manager Tamer Ali said in an interview from Abu Dhabi last month. “We are preparing ourselves for that, even if it takes a couple of years.”

The U.A.E.’s market regulator is encouraging small and medium-sized brokerages to merge. The authority has prepared a proposal for regulations that would govern mergers which will be presented to the board, Zaabi said Aug. 4.

Brokerages’ only options are to close down, fire employees, cut costs or freeze licenses, Daman’s Al Khateeb said. Merging companies wouldn’t be a solution as “bringing two weak entities together will not create a strong one.”

Dubai to Provide $9.5 Billion to Help Dubai World

The government of Dubai will put up to $9.5 billion into Dubai World and its subsidiary Nakheel PJSC to help them restructure debt, Dubai World said Thursday.

The Nakheel bonds falling due this year and next will be paid, Dubai World, which is the chief investment vehicle for Dubai, said in a statement.

Nakheel, the company’s real estate development unit, will receive about $8 billion in the new government funds.

In a statement, the unit said it would “work with its creditors over the coming weeks to secure agreement for the recapitalization plan. The support from the government is conditional upon this agreement.”

If a deal is reached, the government support would help Nakheel to complete work on near-term projects, said Chris O’Donnell, its chief executive.

The announcement comes about four months after Dubai World said it would need to renegotiate $26 billion in debt, which rattled markets worldwide. On Dec. 14, Abu Dhabi pledged $10 billion to Dubai to help repay a bond that was to mature soon.

more at http://www.nytimes.com/2010/03/26/business/global/26dubai.html

UAE Stocks Seen Surging If Dubai Government Backs Debt Plan

(Reuters) - Dubai's debt restructuring proposal will determine the fate of UAE equity markets as the ailing emirate seeks support from Abu Dhabi, with markets poised to rally if the deal includes guarantees, analysts said.

Dubai's index has been resurgent, gaining 12.8 percent in 12 trading days, as investors bet a restructuring deal would be more favorable to creditors than once thought, but it is down 15.2 percent since November 25, the day Dubai World said it would seek a debt standstill.

The government conglomerate is trying to restructure about $26 billion in debt, while Dubai's total debt pile is estimated at around $100 billion.

"It all depends on what the restructuring entails -- if Dubai World offers a seven-year rollover and full repayment, then this is already discounted in the market, but if there's a government guarantee the market will fly," said Haissam Arabi, chief executive at Gulfmena Alternative Investments.

"If the offer is as expected, then banks won't have to increase provisions and so bank stocks like Emirates NBD and the Abu Dhabi lenders should pick up."

Dubai World repayments plan to be presented to creditors

Dubai World's proposals on how it wishes to restructure its debts to creditors will be presented to banks owed money this month, it has been confirmed.

Newspaper reports had suggested that a plan would be put forward as early as this week and Dubai World have confirmed that the process will occur before April.

"A formal proposal will be presented by Dubai World to creditors in March," a government spokesman told AFP.

Last November, the state-owned company announced it was seeking to restructure its debts to banks around the world – sparking a loss of confidence in Dubai across global financial markets.

Dubai had borrowed heavily to fund its property boom, but the financial crisis saw house prices plummet by 50 per cent between 2008 and 2009.

Many of the banks most exposed to Dubai World are British – with Royal Bank of Scotland, Lloyds and Standard Chartered all reportedly owed in excess of $5 billion by the firm.

Its total debt is believed to stand in the region of $60 billion.

China's First Eastern set to launch Dubai fund

(ft.com) A leading Chinese financial group is in advanced preparations to launch a Dubai-focused investment fund, highlighting global interest in a rebound in Gulf economies.

Dubai said in November it would call a standstill on billions of dollars in debts, prompting a bail-out loan of $10bn from oil-rich Abu Dhabi to prevent a damaging default.

The crisis of confidence surrounding the city's $100bn-plus debt pile capped a year of deep recession as the overheated real estate sector finally crashed.

First Eastern Investment Group, an independent Hong Kong-based group, is aiming for a $250m fund, of which it will supply anchor capital of $50m.

The fund is testament to ever-closer business ties between China and the Gulf. It would appear to be the first fund to target the troubled Dubai economy in a bet that the city will recover as higher oil prices lift the prospects of the oil-rich Gulf.

First Eastern is in talks with Abu Dhabi-based investors to supply a further $50m, and it plans to tap Chinese and global interest in the fund in the coming weeks.

Victor Chu, First Eastern chairman, told the Financial Times his group believed that the Dubai economy would recover and progress on a more sustainable footing.

The fund would focus on investing in regional business services companies in areas such as shipping and oil, he said.

Some sectors of Dubai's economy, such as aviation and trade, have weathered the crisis better than the harder-hit businesses in finance and real estate. But the loss of liquidity has left many companies - including those in Gulf states less affected by the crisis - short of credit.

The fund would also seek to invest in Gulf hotels, which would be refashioned to cater for the growing number of Chinese visitors.

"We want to support sustainable businesses connected to Dubai as a trading, logistical and financial centre," Mr Chu said. "We would use our contacts to also help them expand in China and across Asia."

A successful fund launch by First Eastern would be the latest in a number of initiatives to capitalise on rising Chinese interest in investing overseas.

The group's securities arm, which holds investment banking licences in Hong Kong, London and Dubai, is looking to acquire a presence in the US. It is also aiming to raise a Rmb6bn ($879m) localcurrency fund in China, after becoming the first foreign private equity group allowed to set up a Shanghai-incorporated subsidiary.

Companies from the Chinese province of Wenzhou are planning a trip to Dubai next month to invest in assets as the market starts to stabilise, but local brokers report that wholesale transactions are still rare. Sellers have been unwilling to lower their offers to reasonable levels in spite of the severe correction.

www.ft.com/dubai

Dubai Financial Market (DFM) bids for Nasdaq

The Dubai Financial Market (DFM) has submitted a $121 million bid to acquire Nasdaq Dubai.

DFM’s offer for the exchange consists of $102 million in cash and 40 million DFM shares and has been approved by owners Borse Dubai and Nasdaq OMX Group.

The merger has been proposed to develop closer operational links between the two exchanges and to provide stakeholders with the opportunity to benefit from the future growth of Nasdaq Dubai.

Jeff Singer, chief executive officer of Nasdaq Dubai, said: “The combined strengths of the two exchanges will help attract new issuers, from across the region and internationally, who will be able to choose which of the two exchanges is appropriate for them according to their commercial and regulatory preferences.”

He added that the merger will also lead to the creation of a stronger market hub within the Gulf Cooperation Council region.

The deal was backed by the DFM board and is now waiting for approval from the United Arab Emirates’ Securities and Commodities Authority and the Dubai Financial Services Authority.

DFM has announced it will restructure itself into a holding company to adhere to industry regulations.

Abu Dhabi will want extra power in return for Dubai bailout

Middle East analysts are speculating that Dubai may pay a political as well as financial price to Abu Dhabi after its United Arab Emirates' (UAE) neighbour provided the struggling state with a $10 billion bailout earlier this week.

The money has gone to help Dubai World pay off some of its immediate debts, including a $4 billion Islamic bond due to be paid this week by its property development arm Nakheel.

John Sfakianakis, chief economist at BSF-Credit Agricole Group, told the Financial Times that the loan may have far-reaching implications for the balance of power in the UAE.

"We believe Abu Dhabi has and will attach political conditions to its financial rescue, including possibly seeking strategic equity stakes in Dubai assets and reining in Dubai's independence in foreign policy," he said.

His words were backed by Christopher Davidson, a professor of Middle East studies at the UK's Durham University.

He told Bloomberg that Abu Dhabi may see $10 billion as a small price to pay for influence over Dubai's relationship with the rest of the UAE federation.

Abu Dhabi provides $10bn bailout for Dubai

Abu Dhabi has provided its neighbour Dubai with a surprise $10 billion bailout to help the state-owned Dubai World pay off its creditors.

Around $4.1 billion of the funds will be used by Dubai World's property development arm Nakheel, which needs the money to pay back its Islamic bond which matures today (December 14th 2009).

Earlier this month, Dubai said it was seeking to restructure around $26 billion worth of debt, causing confidence in the country's economy to plummet.

But the Abu Dhabi bailout funds have helped the markets, with Dubai's benchmark stock index rising by about ten per cent, while Abu Dhabi's rose seven per cent, reports Reuters.

Dubai has also put in place a new bankruptcy law which will ring-fence prize assets such as airline Fly Emirates should the restructuring attempt by Dubai World end in failure.

Last week, analysts from Morgan Stanley estimated that the total amount of money that may have to be restructured by Dubai could reach almost $47 billion.

Morgan Stanley analysts: Dubai debt restructuring could reach $46.7bn

Morgan Stanley analysts have predicted the cost of Dubai's debt restructuring program could almost double from its currently mooted $26 billion.

The analysts, Paolo Batori and Mohamed Jaber, reported that government-owned Dubai World may be joined by several other organizations in the state in restructuring debt, leading to around $46.7 billion of assets potentially being frozen for an uncertain period of time.

Among the companies they predicted may need the assistance were Dubai Holding LLC, Borse Dubai and Dubai Sukuk Center, reports Bloomberg.

Other firms will potentially "announce debt restructuring plans over the near term", said the Morgan Stanley report.

"We believe that a haircut on the external debt at risk in the area of 40 – 50 per cent is necessary to have a notable long-term favorable impact on public debt dynamics."

Earlier this week, regional and international banks met with Dubai World to begin to thrash out the details of the proposed debt restructuring.

The company is seeking a six month delay to the payment of some its debts.

Dubai World debt delays hit global markets

Dubai's decision to ask creditors of state-owned Dubai World to postpone calling in their debts sent shockwaves through financial markets across the world.

Investors have dumped shares in Asian builders and banks as fears of a second global credit crisis stalk the globe.

Affected banks include Abu Dhabi Commercial Bank, which may be owed as much as $1.9 billion by Dubai World, reports Bloomberg.

Meanwhile HSBC, Europe's largest bank, dropped more than seven per cent in Hong Kong trading, with Goldman Sachs analysts estimating that it may be set for credit losses of around $611 million from the restructuring of Dubai World's debts.

However, it was stressed by the analysts that such a debt loss would be "manageable" for HSBC.

Problems have been sparked in Dubai by the end of the property boom in the country due to the financial crisis.

Dubai borrowed $80 billion over four years to build numerous skyscrapers, hotels and luxury apartments.

But property prices have dropped 50 per cent from their 2008 levels during this year.

Earlier this week, it was revealed that British construction companies are chasing up around $330 million worth of unpaid debts in the United Arab Emirates, with the majority of the money in Dubai.

Dubai Sells $5 Billion in Bonds

Dubai, which borrowed $80 billion to fund an economic boom, raised $5 billion by selling bonds to Abu Dhabi government-controlled banks for a support fund after the credit crunch battered its property and finance industries.

The emirate, home to the world’s tallest tower and the biggest man-made islands, sold the bonds equally to National Bank of Abu Dhabi PJSC and Islamic lender Al Hilal Bank, Dubai’s Department of Finance said in an e-mailed statement today. It will draw down $1 billion initially with a sale of bonds to NBAD and an Islamic bond, or sukuk, to Al Hilal.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aS7A6lbac9BE&pos=7