This is going to be the end of the 2010 GCC outlook marathon; this year I covered four out of the six GCC countries but next year I’ll include Bahrain and Oman.
Dubai has been stealing headlines in the past couple of months, unfortunately only spilling bad news.
“Dubai World Seeks to Delay Debt Payments as Default Risk Soars” Bloomberg (Nov 26, 2009)
“S&P downgrades ratings on four UAE banks” Arabian Business (Dec 3, 2009)
“Dubai World asset sale nears, debt talks plod.” Reuters (Feb 3, 2010)
State-owned conglomerate, Dubai World, shocked global markets when it requested a standstill on its USD26 billion worth of debt. This wrote-off all signs of recovery, even though Abu Dhabi gave them a little help.
After a contraction of 3% in real GDP, the UAE is expected to grow 2% in 2010; the slowest rate in the GCC. This was due to lower oil prices along with collapse of the real estate. Moreover, Dubai debt issue is expected to pull down the economy as it accounts for 33% of UAE’s GDP.
CDS are not looking good
Dubai’s debt insurance has been gradually raising; they are up 130 bps this month. Dubai CDS rose above 600 bps for the first time since November; which means that in order to insure USD10 million it will cost USD 600,000.
Dubai is considered one of the riskiest sovereigns in the world, behind only Argentina, Venezuela, Ukraine and Pakistan.
Low inflation
The inflation in the UAE has hit a nine year low of 1.5%, primarily due to a decrease in the households category.
Equities
In relative terms, UAE equities might look cheap when compared to the emerging markets, as the UAE trades at a 7x P/E multiple against 13x for EM (2010E). Nevertheless, we have to adjust for various aspect to get a better “apples to apples” comparison. UAE’s debt-to-equity ratio is 83%, while the EM is 33%. If we take the assumption of raising equity to level the D/E ratio to 50%, UAE’s equities will trade at a P/E of 12x, which doesn’t look too attractive.
Below is a chart of Dubai Government holdings:
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[...] UAE: Underweight Alpha Dinar- talking GCC finance [...]
A disappointing analysis from you, ignoring Abu Dhabi!
Please clarify to your readers that “state owned” means Dubai Emirate ownership.
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Saud Reply:
February 14th, 2010 at 4:21 pm
Abu Dhabi is not ignored at all, all the numbers given GDP, inflation and equity prices are for the UAE as a whole. Dubai is a large contributor to UAE’s economy and with the recent Dubai World issue we have to mention it.
But again, this is a modest analysis and I’m sure I didn’t cover every factor. We would be delighted to have your point of view on UAE’s outlook as we seek to have diversified writers with different opinions
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you focused only on the downside. These analysts were making Dubai the only winner only 2 years ago. and now it is the limping horse!. I can’t believe that they didn’t see the towering debt levels.
and Dubai is not a soverign, the UAE is a soverign but not dubai.. though ther were ruomers that the Chairman of ICD was trying to make it into one!…oh well
[Reply]
Saud Reply:
February 14th, 2010 at 5:14 pm
I dont think that I focused on the downside; all the given numbers are data based on economic studies (GDP, Inflation), and as for the CDS and equities are all quoted directly from the market.
I personally see the UAE will be triggered behind the global recovery story. I do believe that the UAE is the preferred hub for many investors due to various reasons, such as their infrastructure and ease of doing business.
I think that Dubai has both sovereign and quasi-soverign bonds.
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