DUBAI'S FINANCIAL CRISISCredit management

ABOUT DUBAILocated at the cross-roads of Asia, Europe and Africa

Dubai is well positioned to attract tourists

Shopping, seaside, sports and safety - Four of the key ingredients that have earned Dubai a growing reputation as one of the world's most attractive and rapidly developing leisure destinations.

Trading and commercial hub of the Middle East

SECTORAL COMPOSITION OF GDP OF DUBAI

DUBAI FINANCIAL CRISIS

Dubai was another fallout of the global real estate bubble

With global financial markets plunging after Dubai World, the

government investment company burdened with $59 bn liabilities,

requested for deferment of debt to its creditors for six months, on

25th Nov 2009.

Nakheel has a debt of $26bn & $3.5 bn Islamic bond due to be

paid on 14th Dec 2009.

The Dubai government’s total debt is estimated at $80 bn.

Indian stock markets also plunged with heavy selling witnessed in

banking, infrastructure and realty stocks.

REASONS FOR THE CRISISAfter 2003- Dubai economic model- More debt & less equity.Advantage of

Political and economic openness, Better infrastructure, Trade mark of regional and world business hub.

FDI invited- Invested in real estate-Infrastructure, Tourism- airway Trade

Mismatch between demand and supply.Dubai has accrued debts of approximately US$85-100 billion, or

around 200% of GDP. Government restrictions were low.Lax lending standards and low interest rates.

ROLE OF THE DUBAI GIANTSDubai’s main development engine- Dubai world and its real estate

arm- Nakheel Issued Nakheel bonds- investors ready to invest as it was state

ownedToday many bonds are due and cash flows not enough to pay them

back.Restructuring effect- It has a reported US$60 billion in liabilities, offset by a

calculated US$40 billion in assets There is a maturity mismatch- the expected revenue is in the

future while liabilities, including to contractors and suppliers, are piling up today.

MAJOR IMPACTS OF DUBAI CRISES ON ITSELF

1) Impact on Banking.:-

Those banks which provided finance to various projects are feeling pinch of Dubai crises .

Understandably their shares have fallen since.

2) Fall in real estate prices:-

Building dream projects like the Palm shaped islands, a new urban metro, the world's largest tower, a waterfront to the size of Hong Kong, a leisure park called 'Dubai land‘.

Contd…..3)Layoffs:- The already reeling construction industry is seeing a

major freefall. Laborers are asked to go home and whatever little construction projects were on the anvil, are shelved.

4)Drop in demand of Gold:- Dubai does not produce Gold on its own, it seeks

exports from countries like India and re-exports them to other countries.

Contd.. 5)Immediate drop in oil prices:-

There was slight drop in oil prices as oil contributes to 6 % in Dubai economy.

This crisis is a setback pushing Dubai to rely more on oil revenue. Dubai has to pump more oil out to finance its debt. and as OPEC is not expected to increase the production quotas, expecting oil prices  to go even lower.

6) Depreciation in Dirham:-

The valuation of AED (The local currency of Dubai) saw a drop. This means the strengthening of the Dollar, by a bit.

IMPACT ON STOCK MARKET

Across Asia banking shares plunges down.

Hang seng 3.1% Nikkei 1.8% Shanghai composite index 2.36% Australian stock exchange 3.0% BSE 2.0%

IMPACT ON REMITTANCES

About 4.5 M Indians stay and work in Gulf.

Annually remittances coming out around $ 10b.

Biggest source of capital inflows into India

Dubai is the second largest state, accounts for around 10%-12%

of India's inward remittances.

IMPACT ON EXPORT

India’s Export to UAE 13.1% in FY09 -

Gems And Jewellery – 38.38%

Petroleum products - 17.53%

Non ferrous metals - 17.42%

Basmati Rice - 29.4%

Machines - 16.34%

Indian Banks In Dubai

BOB

Axis

SBI

ICICI

HDFC

INDIAN BANK EXPOSURE Indians bank have a Rs 6500 cr exposure in middle east city. BOB – 10000 cr for Gulf countries. Counts for 7-8% of total loan book accounts. Dubai having a half of the exposure . But these accounts are well maintained. SBI – 1500 cr. Such loans are issued for very short periods (3-6 months).

Foreign banks in the UAE: Loan exposure (in USD bn) HSBC Bank Middle East Limited 17.0 Standard Chartered Bank 7.8 Barclays Bank Plc 3.6 ABN-Amro Bank N.V. (RBS) 2.2 Arab Bank Plc 2.1 Citibank N.A. 1.9 Bank of Baroda 1.8 Bank Saderat Iran 1.7 BNP Paribas 1.7 Lloyds TSB Bank Plc 1.6

3 LESSONS FROM DUBAI CRISIS

Diversification is not just a buzzword

Debt does matter ... Eventually

Foreign investing can be risky

“Destroyed the confidence between borrowers and lenders and it has also shaken the confidence about the pace of a

global economic recovery."

THANKYOU

Deepak Mehta