THE DUBAI CRASH

Complied by :Professor Sameer Kulkarni ©

Mumbai-India
The Turmoil
 Dubai, the second-biggest of seven states
that make up the U.A.E.
 Its state-owned companies borrowed $80
billion to fund a boom in growth and
diversify the economy.
 The global financial turmoil and a decline
in property prices hurt the company in
struggling to raise loans.
The Plans (Failures')
 Istithmar World, Dubai World’s
investment unit, bought New York
luxury retailer Barneys in 2007 for
$942.3 million.
 Dubai World agreed in 2008 to invest
about $5.1 billion in U.S. casino
company MGM Mirage as part of a plan
to diversify the emirate’s economy into
entertainment and financial services.
What is Dubai world?
 Dubai World, is one of the emirate’s three
main state-related holding companies.
 Its flagship company, spurring a swoon in
global markets.
 Abu Dhabi and Dubai are two of seven
semiautonomous emirates that make up
the U.A.E., the capital of which is Abu
Dhabi.

State of Art Ambitious Projects!

The palm-shaped islands off Dubai are being built and developed by Nakheel Properties, a division of
state-owned Dubai World.
State of Art Ambitious Projects!

The Dubai skyline is dominated by the 818-metre-tall Burj Dubai skyscraper, which is slated to open
on Jan. 4, 2010. It is the world's tallest structure. (Kamran Jebreili/Associated Press).
Risk exposure
 A Dubai official said Monday (30th
Nov,2009) that Dubai World's debts
aren't guaranteed by the government.
 U.S. BANK EXPOSURE: According to
Credit Sights, U.S. banks have roughly
$10 billion of exposure to the United
Arab Emirates, with Citigroup Inc. (C)
and J.P. Morgan Chase & Co. (JPM)
accounting for the bulk of it.

Cause of Crises home prices?
 Home prices in Dubai plummeted 47
percent in the second quarter from a
year ago, the steepest drop of any
market, according to Knight Frank LLC.
Property prices may drop further, a
survey by Colliers International showed
Oct. 14, 2009.
 Dubai Government’s Stand!
 Though the government is owner, "the
company has multiple activities and (is)
prone to risks. So from the day one it
was indicated that the government is not
a guarantor," said Abdul Rahman Al
Saleh, Director general of the Dubai
Department of Finance.

Central banks Dubai’s steps
 The UAE’s official ‘WAM news agency’ said
on 30th Nov,2009 that the central bank
has issued a notice to Emirati banks and
foreign banks with branches in the
country saying it would make available
“a special additional liquidity facility
linked to their current accounts at the
central bank”.
Role of Nakheel
 The amount of obligations Dubai World
plans to restructure includes about $6
billion of Islamic bonds sold by Nakheel,
according to the statement.
 The debt, known as sukuk, is governed
by sharia laws barring investors from
profiting from the exchange of money.
Banks Under Trouble
 British banks are at risk including:
 HSBC,
 Standard Chartered,
 Lloyds,
 Barclays and
 Royal Bank of Scotland,
 Collectively they have a $50 billion exposure
to the UAE, according to the Bank for
International Settlements, these banks
may face hefty write downs on the value of
their loans.
Close due dates
 Bondholders of Nakheel PJSC, Dubai
World's property unit whose $3.52
billion Islamic bond is due Dec. 14,
2009, formed a creditor group that
represents more than 25 percent of that
debt.
 Source: Jo Shepherd, head of public relations at Ashurst LLC, which was
appointed legal adviser.
Remedies suggested
 The bankers drafted an advise to Dubai
saying that they now expect a speedy
sale of some of its most high-profile
assets, such as Queen Elizabeth 2, the
cruise ship and Turn berry golf course in
Scotland, which hosted The Open in the
summer.
The Sukuk!
 Dubai's government raised $1.93 billion in
October from the biggest sale of Islamic
bonds from the Gulf Arab region this year,
and paid off a $1 billion Dubai Civil
Aviation Authority sukuk due Nov. 4,2009.
 The sheikhdom and its state-owned
companies have to repay $9.2 billion of
bonds and loans maturing in 2010, $19.8
billion in 2011 and $17.3 billion in the
following year,
 Source: According to Deutsche Bank AG report August,2009.
Impact on India

JITTERY: A group of Kerala workers from the Gulf at the Kochi International Airport
Source: IBN Live
Indian bank’s exposure
 Bank of Baroda (BoB) Rs. 4,000 crore

Which includes $200 million (Rs. 900
Crore) to Dubai world. Loan maturity

Starts from 2011
 State bank of India (SBI) has an
exposure of $50 million, Loan maturity

Starts from 2010



 Indian IT will be Affected!

Exposed Companies

Total West Asia accounts for 1-1.5% of exposure to Indian It Companies

 Tata Consultancy Services (TCS)

 Infosys Technologies
 Wipro
 HCL
 Patni Computers
The Cost Bust (Video)
Cliental Served by Indian IT Companies

 Qatar Petroleum & Road & Transport

Authority of Dubai ---Served By Wipro
 Saudi Telecom---Served By TCS
 Dubai Municipality & national bank of
Dubai----Served Mahindra Satyam



The Expected cascade Impact!
 European and US banks have direct
exposure to West Asia, increasing
default risk will turn the IT industry to
be conservative in allocating capital and
in their spending.
 US and European banking industry have a
significant pie of Indian outsourcing
industry, the risk aversion could
slowdown the pace of outsourcing
Pressure on ECGC!
 Exposure of claims probably up-to
Rs.400-500 crore
 Provides cover for exporters through
credit insurance policies
 Provides guarantees to banks lending to
exports



References
 The Times of India
 Economic Times
 The New York Times
 Deutsche Bank AG report August,2009
 www.Bloomberg.com
 cbcnews
 www.english.aljazeera.net



Thank You!
Professor Sameer Kulkarni,
(M.B.A., M.Com , M.Phill )

Is a senior professor and is associated with the prestigious CIMSR,

Mumbai (Chanakya Institute of Management Studies & Research),
and keeps up-dated to the student community by compiling
presentations on latest topics.

Please visit to his blog www.scribd.com/sam4suchi

for other presentations and notes on various other management
subjects.

Thank you!