Dubai Update

As one might expect, there have been volumes written and spoken in the importance, or significance of the Dubai potential for default. In an interesting release, the Abu Dhabi Central Bank has indicated that they will provide liquidity through supplementary lending. First and foremost, I can't help but see this as layering debt upon debt. As CalculatedRisk states, this may take care of the liquidity but does not take care of the solvency. It is in their opinion that the value of the assets most certainly worth less than the liabilities. And S&P and Moody's each have released their latest figures on the decline in CRE values. Are we possibly at the crossroads of another bout with contagion? Or is this just a poke and reminder of how fragile the current "recovery" might be? Sunday night Asian opening will be another opening chapter to that story.

Dubai Update

by CalculatedRisk on 11/29/2009 11:26:00 AM

Note: I'll have a Black Friday retail post in a few hours ...

From Bloomberg: U.A.E. Central Bank Stands Behind Lenders, Adds Funds

The United Arab Emirates’ central bank said it “stands behind” the country’s local and foreign banks, which face losses from Dubai World’s possible default, and offered them access to more money under a new facility.

And from the Financial Times: UAE central bank offers credit facility

“It’s a bit disappointing .... It’s obviously a welcome measure in itself but we want to see more from the central bank. We want to see that they will guarantee the capital position of any banks that have exposure and that they will ultimately be willing to buy out the debt,” one UAE analyst said on Sunday.
excerpted with permission

Apparently the hope is that a majority of the debt due on Dec 14th is held by banks in the UAE, and that by adding liquidity, the UAE Central Bank will make it easier for the bondholders to accept the deferral of payment. However this isn't just a liquidity crisis - this is a solvency crisis (the assets are almost certainly worth less than the liabilities) - and this does nothing to address the solvency issues.