Abu Dhabi likely to bail out Dubai, crisis not likely to become bigger: India Infoline
27 Nov 2009, 1442 hrs IST, ET Now
We have been discussing the Dubai debt crisis. Do you see the debt problems really coming across as a hangover from the property bubble because we are seeing all those property stocks also taking a lot of a deep cut in the markets, how do you view all of this?
Incidentally I was in Dubai just couple of days ago and I met quite a few investors and some people from authorities also there. The problem has been that there have been very plans of the government and government bodies to develop infrastructure, they are much ahead of demand and that the estimated debt as we read in media is around $80 billion. Now the way things stand today most investors are very hopeful that Abu Dhabi the bigger brother in the seven countries UAE will bail out Dubai because if it does not than it affects credit rating and CDS for the entire UAE and it will be a reputational issue as well.
But I think there are some terms been negotiated that if Abu Dhabi does bail out Dubai with a $10 billion emergency loan kind of a thing right now -I think the payment is due on 12th - so then what are the terms and how they would like Dubai’s economy and financials to be manage hereafter. Now the way things stand today already the CDS spread and the sovereign yield they have gone up world over, people are again getting concerned whether the debt obligations will be met on 12th. The majority view is that within UAE Abu Dhabi is still financially strong, this is a very comfortable position to bail out Dubai, so over the weekend some solution will emerge and may be early next week Monday you will see that Dubai Authorities announcing that they are in the position to meet their debt obligations. That is a most likely scenario but nothing can be ruled out in a volatile world like this and in case there is a debt default then obviously there will be another chaos and world over will see the CDS spread which was sinking for the last six-seven months will again start widening and will create a bit of a havoc at least in the short-term.
Would you say that exporters at this point should be worrying about what could potentially happen in Dubai?
I would say no because of course UAE has emerged as one of the larger partners. Already if you seen 12 months or 18 months the Dubai’s population has come down by 10% to 15%, number of people have been returning back to their countries. People are coming back to India because employment has shrunk there so lot of corrective measures are already taking place and in other markets.
At this point in time I personally do not think that one should not get too much worried even if there is a bit of a technical default which is very unlikely scenario, I think that the way will be found out because see this situation is not like say Lehman or Bear Sterns actually collapsing because it’s a country which is a part of UAE and then there is a very good possibility that Abu Dhabi will be able to bail out Dubai or which ever way the solution works out at least personally I do not think that this will snowball into a much bigger crisis.
Sure but again the issue of remittances you did talk about employment in the Gulf Region is in what remittances going to become a concern because inward remittances from that region does account for a large part of inflows in over here, do you believe inward remittances will be impacted?
See, India gets about $25-$27 billion of inward remittances but over last few years we are seeing that number of our software engineers in the US and other countries also has started remitting. Till about a year back the problem was that most of the people living in US did not like to hold their assets and rupee and would prefer to hold their assets in US dollars so the remittances from say geographies like or continent like USA or Europe were bigger but now that scenario has changed to some extent that will mitigate the lower remittances from Middle East but there is a possibility of some decline but it would not be so significant that it will jeopardise our balance of payment or any such things because India has reserves of $300 billion plus.
So out of $25-$27 billion of NRI remittances, may be Dubai and the Middle East would account for some part of it out of which there is some fall I think from that perspective the issue is not that serious but what happens the biggest damage will come from the sentiment and the global markets vis--vis immediate and then the exports and all those things are in a medium to long term than it will be a slow impact which will not be felt so much.
