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Saturday, November 28, 2009

India Inc, banks play down Dubai blues

November 28, 2009

Analysts say the crisis may discourage realty firms from venturing into that market

The stock markets skidded today as Dubai’s debt woes sparked fears over corporate and bank exposure to a key trading partner. But Indian companies and banks played down the impact, saying the exposure was not significant and they had already pulled out or stopped taking work in Dubai since the slowdown last year.

The banking regulator and the government also tried to calm sentiments by saying the impact looked marginal. The central bank, however, has asked for data from Indian banks on their exposure to Dubai World, the centre of the crisis.

On Wednesday, the Dubai government said it would ask creditors of two of its companies, Dubai World and real estate developer Nakheel, for a standstill on debt worth billions of dollars as a first step towards restructuring.

A host of Indian companies such as L&T, Nagarjuna Construction, Omaxe, Afcons Infrastructure and Country Club of India said they were reviewing their options in Dubai.

A M Naik, chairman of construction and engineering giant L&T, said, “Dubai does not have any prospects and we are concentrating on other emirates such as Oman, Qatar, Abu Dhabi and so on.” The company has a total exposure of Rs 100 crore in Dubai projects and has already recovered 90 per cent of dues from its projects there.

Delhi-based realty developer Omaxe, which had bought two plots from Nakheel, a Dubai World company, for around Rs 450 crore and paid Rs 45 crore as the first instalment, is yet to get development rights from Nakheel and is said to be exploring exit options. "Nakheel has put the project on hold and has not handed over the plots. We are asking for refund for the project,'' said Rohtas Goel, chairman of Omaxe.

Though around $55 billion of deals were announced between companies in India and the UAE, many have not seen the light of the day. For instance, the joint venture between L&T and Dubai Aluminium (Dubal) to set up a three-million tonne alumina refinery in Orissa is still in limbo even after four years, according to brokerage CLSA.

The joint ventures between DLF, the country's largest developer, and Dubai World companies — Nakheel and Limitless — did not take off as the JV partners did not go ahead with the projects.

Analysts said the Dubai crisis could discourage both realty and construction companies from venturing into that market.

"There will be a negative impact, since this is a situation where prices are expected to come down in Dubai. These players would have acquired projects to sell them at a particular price. With pricing taking a beating, the profitability of these projects reduces. Construction firms, which had gone to Dubai to carry on contract jobs, would also be affected, since payments would get delayed and project sizes will be curtailed, thereby affecting their bottom line. Commitments from Dubai-based companies into India will also reduce,'' said Anuj Puri, chairman of international property consultant Jones Lang LaSalle Meghraj.

The importance of the Indian link to Dubai and the UAE, of which Dubai is a part, can be gauged from the fact that Indians constitute 40 per cent of its population, forming 10-12 per cent of India's inward remittances. Thirty one per cent of the 5.3 million Indians in the Gulf region are in the UAE, CLSA said.

Even DP World, part of Dubai World, runs five container terminals in India, accounting for 40 per cent of India's container traffic.

Indian companies had already become cautious in taking up projects in Dubai since the economic slowdown last year. "We do not take up any projects in Dubai unless funding is secured there. But we will work in other emirates,'' said a senior executive from Afcons Infrastructure which is executing the Rs 700-crore Dubai Race Course Connectivity Project.

Real estate giants DLF and Unitech said they had zero exposure in Dubai’s realty markets.

Dharmendra Raichura, managing director of BSEL Infrastructure, which is building a waterfront project and six towers in Emirates City in the nearby emirate of Ajman at a cost of Rs 1,762 crore, said he expected the turnover to fall by 10 to 15 per cent and defaults by 8 to 10 per cent in the project. "But it is nothing new. Sales have been down 10 to 12 per cent since the last 12 months,'' Raichura said.

Hyderabad-based Nagarjuna Construction Company Limited (NCCL), which is executing two projects in Dubai, has completed 45 per cent of a pipeline project and sold one tower in a realty project. ''We will study the market and start construction of the second tower if the market improves", said Y D Murthy, executive vice-president, finance, at NCCL.

Bank of Baroda, which had an exposure of around $200 million (Rs 928 crore at today’s rates) to Dubai World, said the amount was due for repayment only after 2011. "It is paying interest and there are no overdues. So, we have absolutely no immediate concern,” a senior bank executive said.

However, talking about the bank’s total loan book, Bank of Baroda Chairman and Managing Director M D Mallya told PTI: “We have only 7-8 per cent of our total loan book in the entire Gulf region, which amounts to Rs 10,000 crore. These accounts are well-maintained and unlikely to cause any kind of impact on the balance sheet.” Out of the total Gulf loan exposure, Dubai constitutes nearly half of the loan book, which comes to less than Rs 5,000 crore, Mallya said, adding that the industry needed to wait a few more days to get a clearer picture of the crisis.

Other banks said the impact on their operations was marginal. State Bank of India officials said the bank has only a $50- million exposure to Dubai World and there was no reason to worry over the "low" exposure.

Some analysts played down the impact on the markets, saying the money involved was not as big as in other cases in the past. However, valuations of some real estate initial public offerings set to hit the market may come under pressure

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