Dubai debt crisis may jeopardise Pak eurobond launch

[LahoreEstate]

Foreign investors likely to avert risk as financial hub of Middle East announces deferred repayment of debts

Saturday, November 28, 2009
By Salman Siddiqui

KARACHI: The deceptive announcement from Dubai government to suspend its debt repayments may put the Pakistan’s plan to raise funds through Eurobond in jeopardy. The country had decided to sell Eurobond worth $500 million to one billion dollar in the world markets early next year.

Dubai, the land of high-rises and financial heart of Middle East, has virtually defaulted in paying back its debt in time, which had swelled to about $80 billion over the time.Dubai World a government holding has announced to defer the repayment of $59 billion out of $70 billion of its total debts.

“Pakistan government may find it difficult to raise funds through Eurobond, as yield on sovereign debt has risen after the Dubai debt crisis,” foresaw M Sohail, CEO, Topline Securities.Experts are of the view that Pakistan might have to wait for an appropriate time to float Eurobond instead of in January 2010, as chances of raising funds on lower yield have minimized after the Dubai crisis.

It will be worth mentioning here that the value of Nakheel’s 2009 bonds (one of the two major players in Dubai real estate sector) has reduced by 27 per cent yesterday reportedly.Pakistan needs money to continue its war against terrorism; to narrow down twin-deficits; to address corporate circular debt and energy crisis; to pay subsidies on commodities; and to deal with inflation which is likely to increase again following the shortage of commodities from local markets and price-hike in world markets, they added.

Earlier, country was assuming an outstanding response against offering Eurobond in the market, as Sri Lanka received a 17-time higher response against its offer for the sell-off of $500 million Eurobond very recently.

The India stocks market, however, experienced a crash of about 800 points in a single session on Friday following Dubai deceptive move, as it made debt payment deferment announcement after the close of its stock market for a long Eid holiday.

Moreover, European stock markets dropped sharply on the news, with European exchanges particularly hard hit. Paris and Milan each plunged by more than three per cent in afternoon trading on Thursday. US markets were closed for the Thanksgiving holiday, it was reported.

Khalid Iqbal Siddiqui, Director Research at Invest & Finance Securities, observed no direct impact on country’s economy while foresaw no or a very little impact on local bourses as Middle Eastern equity investors have a limited exposure here on bourses.

In the long run, county might welcome back Pakistanis working in Dubai in the aftermath of their job-end. And it might also experience lowering remittances from Dubai and surroundings, Siddiqui added.

Sohail endorsed Siddiqui, saying, “Dubai debt crisis has no direct implications on Pakistan. Neither the government nor the private sector has lent to companies in Dubai that are planning to defer payment. However the foreign investors will become risk averse after this crisis that can have some negative affect on Pakistan stock market where foreigners hold 20 per cent of free float.”

Khrram Shahzad, Head of Research at InvestCap was of the view that the Dubai crisis may impact local bourses a little if Western investors divest in the country too besides it was withdrawing funds from emerging markets like India and China. In the short run, Shahzad said, Dubai crisis may benefit Pakistan as it will fuel the return of capital flight to the country, which the local investors have invested in Dubai real estate following the crash of Karachi stocks market last year.

http://thenews.com.pk/daily_detail.asp?id=210732