Dubai Sovereign CDS Surges 130 bps As Dubai World Seeks Debt Standstill

Tyler Durden's picture

Trader commentary:

The widening of CDS spreads on Greek Sovereign debt has caught some attention and now Dubai CDS spreads are on the move: Commentary on Dubai from the EM guys...Dubai in focus as they do another $5b local tranche in the $20b Abu Dhabi program, then ask for extension in Nakheel maturities for 5 months. Very strange. Thought whole point of issuing the bonds was to pay for the Nakheel debt. Dubai CDS +130bps from o'night level of 318 ... seems to be hitting the European markets now.

Sequential popping of bubbles to commence shortly.

Historical Dubai CDS below:

h/t Macallan 18

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Anonymous's picture

The middle east bloc are big buyers of USTreasuries. They may have to recycle into other currencies or gold or simply stop buyinf USTreasuries if there's a problem in M.E. area debt. Nations with debt problems tend not to buy the debt of other countries.

In general, the key question is as follows: by what means does the USTreasury bond market become unglued.

The Axe's picture

Call the neighbors and tell them to open up the oil faucet! 

jmf's picture

Moin from Germany,

they are trying everything to please their new overlords....

Until last month, a billboard at one of Dubai’s busiest roundabouts featured one photo, of Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum. The new billboard says “Long live our Emirates union” and also shows United Arab Emirates President Sheikh Khalifa Bin Zayed Al Nahyan.



A Man without Qualities's picture

I met a traveller from an antique land
Who said: "Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shattered visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed.
And on the pedestal these words appear:
`My name is Ozymandias, King of Kings:
Look on my works, ye mighty, and despair!'
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away". 


I heard about a guy from the UK who had spent his life savings to pay the deposit on a couple of houses in Dubai.  He had to buy off plan and pay cash for 20%.  More than a year later, and the construction of the houses had not started, so he attempted to cancel the contract on the grounds that the developers were not able to proceed at per the agreement.  The developer pointed out that they were ready to go, but the problem was the island the property was to be built on, had not been created yet. A South Sea Bubble for the 21st Century...


Anonymous's picture

Woooo Ho! I love this one. Camel tranches. Watch 'em burn!

john_connor's picture

The dominoes are falling, first slowly, then an avalanche.

Anonymous's picture

kiis ak ta ha! A khoo sharmoutah! Bukraa in sha' allah.

Anonymous's picture

Sorry. Just an epithet or two in the native tongue.

Karston1234's picture

Round the decay Of that colossal wreck, boundless and bare, The lone and level sands stretch far away". online high school diploma | online ged | online degrees

Anonymous's picture

There's going to be more bubbles popping than a Lawrence Welk show.

Assetman's picture

Oh... just wait until US CDS spreads pop... hoo-boy!

SV's picture

Tyler - Help some people out here with a poke or two at how this exposure is going to manifest.  I'm thinking like a SWAT analysis in terms of players of an disorderly unwind.

svendthrift's picture

"Dubai Sovereign CDS Surges"

Would someone kindly explain to me 1) why the surge 2) what this means?

Assetman's picture

While there might be something unique going on in Dubai, the world is now entering a currency devaluation competition. 

Some countries will not be affected much by this (i.e. Canada); others will affected a lot, as soverign debt is perceived to be more risky (greater chance of default).

You can start with Greece and Dubai... the U.S. is also in this bucket, due to the massive sovereign that still needs to be financed.

The game is on... and it's going to be crazy.

Steak's picture

The bloomberg story about this guy:

The state-controlled company will ask all creditors for a “standstill” agreement as it negotiates to extend maturities, including $3.52 billion of Islamic bonds due on Dec. 14 from its property unit Nakheel PJSC, the builder of palm tree-shaped islands, Dubai’s Department of Finance said in an e-mailed statement. Moody’s Investors Service said it would consider the plan a default should bondholders be forced to accept the terms.

johngaltfla's picture

There's your gold move. This is a Middle Eastern/Asian driven panic. If Dubai World goes, so goess Citi and 1/2 the London and Hong Kong banking system in one shot.


Not to mention the House of Saud is not in the best of financial shape and could NEVER absorb this size of a hit.

Anonymous's picture

More on this? I am trying to asses the impac outside of the UAE....

Gordon_Gekko's picture

Soon, there will be only ONE question reverberating around the world:


Anonymous's picture

I thought they had oil? Why would they default on their debt?

Anonymous's picture

Oil and gas are around 5% of their mainly built on tourism and Real Estate right around the peak. Oops!

Anonymous's picture

May be a stupid question but isn't "DUBAI CDS USD sr 5Y" a CDS on Dubai Holding Commercial Operations? Shouldn't you use the "DUGB CDS USD SR 5Y" instead?

Anonymous's picture

Dubai has very limited oil, effectively nothing, they are depending on Abu Dhabi. Nakheel is the developer that built Dubai, which has a big maturity coming up in December which cross defaults into Dubai World.
The emirates have been making very good progress in addressing the debt load of Dubai and the Dubai World companies recently. It would be a ridiculously stupid move on their part if they let this happen, esp since they have the resources to address the problem, at least '09/'10 maturities, then get the locals to extend so spreads don't blow out and they become the next Argentina. Saudi doesn't matter at all here, not even in the picture. Their banks are too tied up figuring out what is going with the Golden Belt Sukuk and related debt fraud/default to worry or care. Plus, they don't really give a shit about Dubai aside from some JVs with other emirates and what that may mean for their cost of funding. The other emirates are the guys who really have a lot to lost, specifically Abu Dhabi. They are rolling in cash, they could pay it all down today if they wanted, they just don't want to be giving out cash without strings attached.

This is not going to blow up, they will not default on their debt. What Dubai World is talking about now is a voluntary extension. If they force an extension, then Dubai World defaults, and they are f-ed in a big way. They might be doing this so that they can get local holders to consent, so the $20Bn package goes a longer way. That way, they still have some cash for the clowns at Tamweel/Amlak to get their act together.

Or maybe I'm wrong, and Abu Dhabi prefers paying 1500bps over what they are paying now. Reputation is big for these guys, I think they would rather pay than lose it.

Anonymous's picture

I know this is a dumb question and I really do try to keep up around here - I have learned a TON. But if it is truly the entire world in the same boat, does it matter? I know China is in a better position in terms of having no debt, but if they can't sell to the rest of the world, they lose too. So I wonder what the true impact will be. Spell it out for me like I am special. Thanks! :)

j0sh1130's picture

i find the whole dubai debt situation hilarious.  as a foreinger, if i were to go to dubai and default on a loan or credit card i could be held in debtors prison for years.  but as a govt, they can default on loan payments and try to force workouts that favor them with no fear of the corporate executives (royal family) ending up in the slammer.  it amazes me how blatant the distinction is.

Anonymous's picture

Surely the whole Dubai project depends, ultimately, on there being enough people in the world who have the money to jump on a plane and pretend, for a fortnight, that they are loaded.
In a global recession, and given that many of their punters will come from Europe (can't see Americans coming when they have their very own Las Vegas), and given that much of Europe is truly screwed by the biggest credit boom in history - I foresee empty hotels and bankruptcies.

Why anyone would continue to fund the nonsense that is Dubai is beyond me.

spritch's picture

Hey guys can you tell me something. If the whole world is in debt why don't we just all declare bankruptcy and call it even?

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