Dubai crash rattles India

Ranjana Kaushal
New Delhi, November 28, 2009


Global financial markets went into a terrified tailspin
 when news broke of Dubai's $80- billion debt crisis.

Stocks crashed worldwide and commodity prices plunged
the most since July as Dubai's attempt to delay debt
repayments - a technical default for most investors -
spooked markets.

The Bombay Stock Exchange Sensitive Index or Sensex
fell 1.32 per cent on Friday or 222.92 points to close at 16,632.01.

Fears that the tiny emirate - the financial hub of the
oil- rich Persian Gulf region - could default, led to
 massive sell- offs. The Sensex plunged sharply at start
of trade, falling more than 550 points in early trade,
 before the market rallied on news that the impact may
not be as severe on India as anticipated.

While the US market was shut for the Thanksgiving weekend,
stock futures fell sharply on both the NYSE and Nasdaq,
 signalling future shock.

Britain's top share index was down 2.9 per cent in afternoon
trade on Thursday, while Tokyo lost 2 per cent, as traders
 worldwide sought to cut exposure to risky assets.

Others may not be so lucky.

When Shah Rukh Khan bought a luxury mansion in Dubai's premium
 Palm Island less than a year ago, he could have hardly anticipated
 that his much- hyped property was being built by builders who
were knee deep in debt.


Khan isn't the only Bollywood star vying for a luxury house
in Dubai. The Bachchans - Abhishek and Aishwarya, Sameera Reddy
 - and several well- known fashion designers have invested in
properties upwards of $ 2 million.

For most of these high networth individuals, the delivery of
their dream homes will be delayed and a resale of the property
at anything like the purchase price seems a dim prospect for some time to come.

The debt tornado in Dubai has engulfed almost all sectors in
 the country. With Indians forming more than 42 per cent of
the population of the desert kingdom, and with many businesses
 having exposure to Dubai, the shockwaves will be felt in India as well.

The crisis began on Wednesday when Dubai, part of the United Arab
Emirates, asked to delay payment on billions of dollars of debt
issued by Dubai World and its main property subsidiary Nakheel,
developer of three palm shaped islands that once lured celebrities
and the super- rich.

Dubai, which has an accumulated debt of $ 80 billion, mainly to
fund grandiose mega projects like the creation of artificial
islands and the world's tallest structure, the Burj Dubai,
has been mauled by the worldwide recession. Home prices
fell 50 per cent from their 2008 peak, according to Deutsche
Bank AG. That meant disaster for Dubai World, the real estate
conglomerate owned by the ruling family.

Around $59 billion of the nation's total debt is in the name
of Dubai World arm Nakheel. This has been underwritten by the government.

In India, the government moved swiftly to do damage control,
with finance secretary Ashok Chawla saying the impact on the
economy would be minimal and that remittances from Indians in
Dubai are unlikely to be hit.

That, however, remains to be seen. Dubai has already seen one
round of blood- letting during the global economic meltdown.
Tens of thousands of Indians have already returned home, with
little or nothing to show for their labour.

Kerala, the state with the maximum dependence on remittances,
actually asked the Centre for special funds to settle returnees.

Businesses too, will be hit. Jewellery exporter Rajesh Exports
Ltd says the Dubai crisis hits it directly as 40 per cent of
its revenues are from the emirate.

Indian banks Bank of Baroda, ICICI Bank and State Bank of India
( SBI) claim their exposure to real estate firms is either zero
or insignificant.

M. D. Mallya, chairman and managing director, Bank of Baroda, said,
 " We have only 7- 8 per cent of our total loan- book in the entire
Gulf region. Dubai constitutes nearly half to the loan book which
comes to less than Rs 5,000 crore." The SBI said it had only minimal
lending exposure in the UAE - less than Rs 1,500 crore. ICICI said it
has no material, non- India linked exposure to Dubai firms.

Shyamala Gopinath, deputy governor, Reserve Bank of India, said:
" We will ask banks to furnish details regarding their exposure in
Dubai World." Dubai's growth is directly linked to the infrastructure sector.

So, the debt crisis is likely to impact companies and businesses with
interests in Dubai's realty market. Engineering major Larsen & Toubro's
exposure to Dubai is in the range of $ 20 million-$ 25 million and has
been one of the most aggressive companies in the region.

R. Shankar Raman, executive vice- president, finance, L& T, said
on Friday that the company's exposure was largely in the hydropower
segment. Its total exposure in West Asia over the last two years is around $ 200 million.

Nagarjuna Construction again has a significant exposure in Dubai.

Y. D. Murthy, executive vice- president, finance, Nagarjuna Construction,
 said, " The firm has only one venture in Dubai - a 440- apartment project,
 and is going slow on it. It is also doing a Rs 100- crore water pipeline
project at Dewa, Dubai. There is no default payment problem at the Dewa
 project and the exposure to the Middle- East is mostly to government- owned
agencies." Emaar MGF, a joint venture between Dubai- based Emaar Properties and
India's MGF, said its operations are only in India and the developments in Dubai
would have no impact. " Our business and funding plans are on track," a company
statement said.

While the crisis has sent jitters globally, analysts say the Gulf city state can
count on Abu Dhabi, its deep- pocketed rich brother, to avoid default.

"Dubai is not on the verge of bankruptcy, thanks to Abu Dhabi's support," said Pascal Devaux,
Middle East risk assessment economist at BNP Paribas.

Source: India Toay