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Dubai and the Terrible, Horrible, No Good, Very Bad Day
Not to be left out of the party, Morgan Stanley yesterday issued "A Closer Look at Dubai's Debt." True, they figure that GRE's (government-related entities) are saddled with about 116% of Dubai's GDP in debt, true, if the government shifted implicit support to explicit support for these entities interest expense could account for a third of government spending very quickly, granted, total public sector debt looks like 140% of GDP (assuming no major GDP falloff of course) yes a 40-50% haircut would be required to have a meaningfully effectual impact on the debtor's predicament, but you should be selling five year credit default swaps on Dubai debt because Morgan Stanley is buying things really aren't so bad.
Reading the report, we were particularly interested in Morgan Stanley's assessment of the amount of "Quasi-Government" debt Dubai has issued, not just because they use "GRE" instead of "GSE" to describe Dubai World, Dubai Holding and the like, but because they freely admit that nobody knows nuttin' when it comes to these figures.
There are no official estimates of the debt owed by Dubai’s GREs. Calculating the overall size of their debt liabilities is further complicated by a number of factors, including: (i) the complex organizational structure of Dubai’s quasi-sovereign holdings (see Exhibit 4); (ii) the lack of transparency regarding operations of its mostly unlisted companies; and (iii) the lack of data on bilateral, non-disclosed loans extended to these entities.
This didn't stop Morgan Stanley from trying a few guesses though. Luckily for the reader, the contours of Morgan Stanley's proprietary analysis and the details of the extensive modeling used to estimate the dark matter component of Dubai's debt is hinted at in the footnotes. Specifically:
Later, Morgan Stanley rightly points out that quasi-public corporations have "quantifiable assets" that creditors might turn to in the case of liquidation. What these might be quantified as, however, is a different matter all together. Very little in terms of asset diligence seems to be available when it comes to Dubai. This should be telling.
The bottom line is that almost none of the half-dozen major analyst reports on Dubai rushed to press in the wake of the "surprise" moratorium demand provide much insight into the sandy situation, beyond information already available via public channels that is. Given that, in this particular case, public channels seem to include a lot of sourcing from "Dubai Authorities," and that the scanty "fib factor" analysts at, say, Morgan Stanley are prone to apply to public figures is between 20-30%, it is somewhat difficult to credit many of these estimates with anything like reliability.
True, we are skeptics by nature here at Zero Hedge, but when the Crown Prince himself is busy fibbing in front of the G7 days before a blow up (which we simply cannot imagine was a huge surprise- at least for the most connected insiders), when even the sovereign's private investment slush fund is looking at another $12 billion in debt it might not be able to pay (and which both no one and everyone seemed to know about before last week), when a lot of "real estate" collateral looks a lot like... well... sand, it is not hard to look at a balance sheet where foreign creditors make up something like 78% of the liability column and wonder if 20-30% isn't a little conservative a figure to be goosing "long term liabilities" with. Add to this the fact that Abu Dhabi (read: Daddy Warbucks) is, quite frankly, getting pretty sick of Dubai's complete lack of fiscal, social or moral graces (you just knew all those eastern European call girls in the middle of an islamic country were going to come back to bite you in the ass- so to speak) and it is just hard for us to see how this is going to go as swimmingly for Dubai as the likes of Morgan Stanley suggest.
On the contrary, we sort of suspect that once authorities arrive, the scene will look more like the Miami Beach hotel aftermath of an Offer "Vince ShamWow" Shlomi v. Sasha Harris cage match, complete with evidence photos shot through with the usual illicit sex breadcrumbs, a minibar totally devoid of even that last one-eighth size screw-top red wine bottle, suspicious looking white crystalline powder, enough bloodstains to impress Tarantino, and a $750 pay-per-view bill. Of course, who really wants to press charges after all that? One can always move to Australia.
Opacity is a way of life in Dubai. It is no accident that many (if not most) "pictures" of the Dubai skyline are actually "artists conception" pieces. This is not the first time we have pointed out that for some time now, and not unlike DeBeers, Dubai's chief export has actually been illusions. Leveraging that takes some kind of talent. (Or dictatorial control over the financial press).
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thx for yet another great piece on Dubai, Marla; you've really been the tip of the analytic spear on this 'surpise' flash-crash.
ultimately, and rather crudely, Dubai is effectively little more than a middle eastern sheikh-controlled Chaebol of sand, straw and soon-to-be-dry dreams. please do let us know once either the dumbasses of Dubai or the ephemerally opulent regional slumlords of Abu Dhabi budget a few billion dirham for an alchemy project. a fool and his money ....
Is David Copperfield one of the American expats in Dubai, considering their substantial expertise in legerdemain?
So this report is another effort at keeping the illusion alive, proving that real estate is not always so "real." The world's biggest sand castles are a wash out. These guys are real sons of beaches.
Why so much coverage on max 60bn?
If their whole book was at risk I'd say yea but they have sliced and diced in order to purge in a financially bulimic fashion.
Let's move on, yes?
Because you don't know what all would come out... when you start analysing bigger nos starting with more zeros than 60 bn...
Seems to me the plan is to ring-fence all those super duper investment opportunities provided by friendly western investment bankers, which have gone horribly wrong as they always would, move any real assets (esp those in Dubai) out of the way and then let the bankers go f&&k themselves or take those Russian whores away as payment in kind.
Marla(s) you are really on a roll today. Love the headlines!
Wow Marla...nicely done.
Thank you!
Nakheel Has Loss of $3.65 Billion in First Half
http://www.bloomberg.com/apps/news?pid=20601087&sid=aBgG0U3Audgc&pos=1
I had a sinister thought: What if the sheik deliberately did this to buyback his paper cheap? Nakheel 3.1725 is bid 52.99. Half-price sale?
Doesn't make a lot of sense to me...it would be like paying off your home mortage with a credit card. From one pocket into another. Then essentially he would be backing the debt and those valuations which based on the vacancies we know are not real.
It make sense because you would avoid default, i.e. the creditors couldn't seize your assets, especially those outside of your sandbox that are presumably easy to seize.
Also, it decreases the chances that you will be unable to tap debt markets for the next 10 years.
Happening in EME as we speak; don't know much about the arab world.
I think they force the bondholders to take a haircut...think of this as a "strategic default".
Even if there was a haircut in restructuring, creditors will want cash/assets up front in exchange for the mod. The buyback solves the problem. (See http://www.nytimes.com/2009/12/08/business/global/08dubai.html?ref=business)
As Stalin once said "no creditors - no problems."
But.......... the cc is unsecured , no recourse and then the house is free and clear. Sounds good to me.
It's secured by a different beach front property that was is intened for the next stage of development.
I don't have the info memo in front of me, but I seem to remember that Dubai World is a guarantor, meaning you probably have recourse to its assets.
A really interesting question is cross defaults and other covenants in the other dubai soverign/quasi-sovereign issues. Haven't seen a word about that. It's one thing to burn $3.5 bln investors; taking down $60 bln is even funner.
Gotta run gang, but here's the report.... http://www.scribd.com/doc/23797975/Strategy-and-Economics-UAE-A-Closer-Look-at-Dubai%E2%80%99s-Debt
They've basically put all the detonators in there....this weekend is when the button gets pushed.
With so many suckers reaching for yield, why not make the Western world pay for their infrastructure?
A no brainer if you ask me.
"sandy situation" LOL!
The irritating sand seeks the loosest vagina.
Personally I dont get that much glee watching the Emiratis eat it -- they are lazy and selfish but at least friendly. Its the British asshole advisers, lawyers and bankers that were the real assholes in Dubai -- end of the British Empire, round 2.
http://www.cnbc.com/id/15840232?video=1353246661&play=1 she is bearish..piling on
I thought central europe was supposed to implode. Guess not. Not one eastern european bank has collapsed. Yet the Greek government is bust. Really. So what happens to olive oil and athenian condos?
Dubai collapsing into the sand? Justice. As they have been abusing the women of europe for too long. They should rot into their sand caves. I guess israel becomes the main hooker broker-pimp of the middle east.
aside from all the "subtle" xenophobia it would be more interesting to take a look at where the original capital came from for the real estate in dubai.
dubai has been a bolt hole for high profile gangsters from around the world. indian and russian especially.
Dawood Ibrahim of the D company (Forbes ranked as one of the 10 richest criminals, now wanted on terrorist funding activities and linked to the hotel attacks last year) migrated there for personal safety 15 or 20 years back .... now when did dubai start to build up their real estate?
I wonder if Dubai is too big to fail?
So what do you think Dubai really did with all that money that was loaned to them? Oh, maybe they bought a few cars. Yes, that is a white gold plated Mercedes Benz. Nothing too kitsch for the sheik, right?