A quick & dirty summary of what is happening:
– On Wednesday November 25 2009, Dubai (which is part of the United Arab Emirates), said it is seeking to delay/suspend payments on billions of dollars of debt to the creditors of it’s state owned Dubai World and subsidiary Nakheel, as part of its restructuring of Dubai World.
– Creditors were asked to hold off on requiring debt repayments until at least May 30, 2010. Dubai has about $80 Billion in debt and faces a heavy redemption schedule stretching into 2013. Dubai World which has about $59 Billion in debt, was scheduled to repay $3.5 Billion in December. Bank of America-Merrill Lynch estimates a total debt amounting to $184 Billion by the end of 2009. Dubai may look to Abu Dhabi (the largest of the seven emirates) for financial support.
– It is feared by the financial world that lender’s (banks, financial & investment firms, etc) may be exposed to the debt of the companies involved in the Dubai expansion. Dubai World is the conglomerate behind the massive expansion of the Emirate. Nakheel is the builder of the palm-shaped islands. Lenders are downplaying their exposure. But we’ve heard this kind of thing before.
– HSBC Holdings, is one of the bookrunners on a $5.5 Billion loan to Dubai World, along with Standard Chartered, Barclays, Royal Bank of Scotland’s ABN Amro, and DBS Group of Singapore are speculated by the financial community to have the largest exposure.
– The news had investors fleeing from the world markets. Commodity prices fell sending oil below $75 a barrel (5% decline). Gold, copper, and even grain prices fell sharply. Stocks/equities have seen an overnight sell off with Asian markets dropping about 3-4%, as they are seen as risky assets. However, the US dollar has been seen as a safe haven rose slightly (0.7%) against its peers.
– The US market was closed for Thanksgiving, and may experience another short term panic sell off again.
Be fearful when others are greedy, and greedy when others are fearful [Warren Buffett].
– There may be some more deals to be had with another sell-off, but as always remember to be diligent in your analysis and research. Now go have fun fishing out there!
Thanks & Happy Investing!
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