Morning:
10°c
"I spoke to one of my colleagues last night," a Dubai-based banker told me this week, "and he sounded like he had his c**k in his hand." I phoned the colleague in question, who assured me that wasn't the case, but the story sums up the general euphoria after the UAE central bank dug Dubai out of a financial hole with a $10 billion bond.
As bailout goes, it's a biggie: $10 billion is roughly 20% of Dubai's GDP, or $6500 per person (more if you believe UBS, which says the population will shrink 8% this year as expats go home). Indeed, it could turn out to be even higher - $10 billion was just the first bit of a $20 billion bond programme unveiled this week.
In theory, Dubai could raise the difference on the open market. In practice, that's unlikely. The central bank lent at extremely friendly terms - $10 billion unsecured over five years at 4% interest. Hands up any bankers in London who fancy putting that deal to their board of directors.
Dubai needed the money to help cover about $13 billion of debt due for refinancing this year - most of it owed by state-backed companies such as Nakheel, the real-estate developer building huge offshore islands in the shape of palm trees.
Global credit markets seized up just as domestic revenues from property, tourism and trade floundered. Long-term, most analysts say the projects are viable, but cashflow was becoming an issue.
As such, many traders of Islamic bonds and credit-default-swap markets were betting that at least one Dubai Inc company would default. This week's support from oil-rich Abu Dhabi (home to the central bank and 95% of national oil reserves) has cooled those fears. Dubai's main share index rallied 8% the day after the announcement, with bonds rising even more steeply.
All cause for celebration among the city's banking community.
* Property prices in Dubai won't recover until 2011, according to analysts at Jones Lang La Salle. They say this year is one of correction, next year stabilisation while 2011 should see an upturn. Morgan Stanley says home prices are down 25% from their summer peak.
* The turmoil in the US housing market has hit Emaar Properties, which is building the world's tallest tower in its home town of Dubai. Two years ago, Emaar bought US homebuilder John Laing Homes. It's now filed for bankruptcy as Emaar seeks to minimise further losses.
