• Dubai, the second biggest of seven sheikhdoms that make up the United Arab Emirates, and home to the world’s tallest tower and the biggest man-made islands, suffered the world’s steepest property slump in the global credit crisis as home prices fell 50 percent from their 2008 peak.
• Dubai World, with $59 billion of liabilities, is seeking to delay debt payments, sending contracts to protect the emirate against default surging by the most since they began trading in January.
• Dubai accumulated $80 billion of debt by expanding in banking, real estate and transportation before credit markets seized up last year.
• Investor concern is growing because the emirate hasn’t disclosed how it will pay more than $9 billion of debt coming due in the next four months.
• Abu Dhabi government-controlled banks, National Bank of Abu Dhabi PJSC and Islamic lender Al Hilal Bank bought all $5 billion of bonds from Dubai’s government.
• Dubai will draw down $1 billion from the bonds sold to the Abu Dhabi banks to provide funding through a sale of securities to National Bank of Abu Dhabi PJSC and Islamic debt.
• Dubai owes $4.3 billion next month and another $4.9 billion in the first quarter of 2010 through government and corporate debt.
• Dubai World had $59.3 billion in liabilities at the end of last year.
India’s links to Dubai and UAE:
• 11% of Gulf capital flows between 2002-06 headed to Asia
• Indian are 40% of UAE’s population; forming 10-12% of India’s inward remittances. 31% of the 5.3m Indians in the Gulf are in UAE.
• UAE forms 8% of India’s non-oil exports and 3.0-3.5% of India’s nonoil imports.
• DP World operates five container terminals in India, accounting for 40% of India’s container traffic.
• Real Estate: Emaar-MGF and DLF-Limitless are the key alliances for investments into India. Sobha Developers had plans to build two residential towers and two hotels in the UAE.
• Construction: L&T has two joint ventures in the UAE, others with business interests include Gammon India.
• Banking: Bank of Baroda has 10 branches in the Gulf (largest), but mostly small banking exposure, mainly for remittances. Bank lending to UAE funded projects in India unknown.
• IT Services: No material exposure. A few deals for Wipro and one for Infosys.
Important projects between India and Dubai in last 5 years:
1. In 2006, Indian Minister for Commerce and Industry Kamal Nath had met top DP World officials and assured the smooth transfer of P&O’s India assets to DP World.
2. In 2005, L&T and Dubai Aluminium (Dubal) formed a joint venture to set up a 3 million tonne alumina refinery in Orissa. Dubal holds 74% stake in the JV with L&T holding the remaining 26%.
3. Istithmar, the private-equity arm of the Government of Dubai invested US$12.5m in SpiceJet in early 2005. In January 2007, Istithmar invested US$30m at Rs52 per share.
4. DP World operates 5 container terminals in India, 40% share in container traffic: DP World, the Dubai government’s premier maritime company, is one of the largest marine terminal operators in the world with 45 terminals and 13 new developments across 29 countries. It operates five container terminals in India: the Nhava Sheva International Container Terminal (NSICT) in Maharashtra and those at Chennai, Kochi, Vishakhapatnam and Mundra and is developing two additional terminals at Kulpi and Vallarpadam.
India links with the UAE:
1. People:
Indians form 40% of the population of UAE. The impact of the Dubai debt would affect the people of India who are working in Dubai. The unemployment level in India would rise if the Indian people working in Dubai are given the pink slips. Indians in the Gulf, of which 31% were in the UAE, mostly as construction labor for Dubai’s real estate boom.
2. Real Estate:
The Indian real estate sector will be one of the major sectors that will be hit by the Dubai debt crises. Most of the Indian construction companies have projects in Dubai. Some companies that are having big projects in Dubai are: DLF, MGF, Gamet Construction, etc as shown below. Some companies like Nagarjuna Construction, Shobha Developers, Gammon India, etc have small presence in Dubai.
3. Banking:
The Indian Banking sector has a very small presence in the Dubai. We can see that there are hardly few branches of the Banks that are present in Dubai. Hence we can consider the Indian Banking Industry to be safe from the Dubai Debt crisis. Some banks that have presence in Dubai are Bank of Baroda, ICICI Bank, SBI, etc as shown below.
4. Non-Oil trade:
India’s non-oil exports to the Gulf were about 12% of its total exports in FY07, and exports to the UAE formed about three-fourth of this. Therefore, India’s non-oil exports to the UAE were about 8% of its total exports. Similarly, UAE dominates India’s non-oil imports from the Gulf- forming about half of the total imports from GCC and about 3.0-3.5% of India’s global non-oil imports.
5. IT Services:
The Indian IT Sector does have a sound presence in Dubai. The companies like TCS, WIPRO, Infosys, etc have got projects. But these companies have diversified portfolio in other countries and hence this sector might not be impacted much by the Dubai Debt Crisis.
Overview:
Reacting to the development, financial markets across the world got into panic mode, not surprisingly and markets in Asian and Europe markets fell on Thursday.
On Friday, US markets remained shut due to Thanksgiving as also some Asian markets but those that were open, including India’s, reacted negatively to the news. In India, the National Stock Exchange’s 50-share Nifty fell 100 points at opening trade following up on another 100-point fall on Thursday to retreat below the 5,000 mark.
But when the Finance Minister Mr. Pranab Mukherjee declared that dependency of Indian companies in not that big on Dubai and Indian Companies might not be affected by the Dubai Crisis the NIFTY ended on Monday 90 points up above 5000 levels at 5032.
From the above data we can identify that India has links with Dubai, but if we check the dependency of the Indian companies on the Dubai Market, then it is not that strong. Real Estate and People are the few concerns where India has sound presence in Dubai. Apart from these sectors Indian Companies and sectors do not have much dependency in the Dubai and hence should not be affected by the crisis.
Thanks,
Nimesh
Source: Bloomberg, Money Control, Economictimes, Reference Articles from various websites.
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