27 Nov 2009, ET Bureau
MUMBAI: The Dubai debt fiasco rattled equity markets across the globe particularly battering realty, infrastructure and banking names, which have their exposure to the emirate.
Dubai said on Wednesday it wanted creditors of Dubai World and property group Nakheel to agree a debt standstill as it restructures Dubai World. Dubai World's debt burden stands at $59 billion of the total $80 billion debt of the state. The government of Dubai has authorised the restructuring of Dubai World to be spearheaded by the Dubai Financial Support Fund.
Even as a number of corporates declared their non-exposure to the real estate sector in Dubai, investor sentiment was badly bruised.
"Dubai debt crisis came as a nasty surprise and acted as a trigger for the market, which was otherwise also ripe for correction and looking for some major trigger for correction. Though market participants were not confident and had no conviction to buy in to a market at upper band of trading range, bears were not having courage to push the sales aggressively. But yesterday's events in Dubai led to a panic situation; leading to sharp losses in many bank stocks across Asia and Europe; plus a general selling trend in eqities, and an appreciation in dollar.
What will be the real impact of the Dubai issue will depend upon how the newly appointed Dubai World's chief Aidan Berkett will handle the restructuring of this investment and property giant. But it has triggered much awaited correction in global equities, which can last longer then expected. So traders be cautious, lighten the long positions and wait for situation to calm down or let the restructuring happen or help to flow in from friends and neighbours of Dubai. For now, extreme caution is warranted," said DD Sharma, senior vice president-research at Anand Rathi Securities.
The Dubai government's announcement prompted Standard & Poor's and Moody's Investors Service to sharply cut their ratings on several government-related entities. Moody's slashed some units to junk status and S&P said the restructuring could be considered a default.
Engineering and construction firm, Punj Lloyd said it has no exposure in the real estate sector in Dubai. Developer DLF and Punjab National Bank also said they had no current exposure to Dubai.
On the other hand, engineering major Larsen & Toubro's exposure to Dubai is in the range of $20 million to $25 million. Bank of Baroda said it has total loan book exposure of 7-8 percent at around Rs 100 billion in the United Arab Emirates.
Other than Larsen & Toubro, which has been the most aggressive Indian company in the GCC region, smaller infrastructure companies, also have a strong presence. (See table top)
In the banking space, Bank of Baroda is the most active with 10 branches in the Gulf, but mostly small banking exposure, mainly for remittances. Meanwhile, ICICI Bank which has three branches across the Gulf region said there is no material non-India linked exposure to Dubai corporates.
However, Krishna Sanghavi of Kotak Mahindra AMC was of the opinion that the exposure of Indian companies to Dubai being limited, it may not have a substantial impact on our markets. "From a pure India perspective, the financial markets are impacted by the global sentiment. Certain sectors may also be under pressure on account of their business in terms of realizing that the existing money lent or to be received from these geographies or to an extent of implications where the existing order book may not be implemented at the right time frame. However, it is difficult to find any particular sector with a substantial exposure to the geography which can have a grave impact on the business models or the financials of the companies. India continues to be a domestic consumption story although there are companies which have had a vision of expanding to newer geographies. However, in the overall international exposure, Dubai will have a relatively lesser presence and domestic investors need not be worried from an Indian market perspective," he said.