Why Sensex lost around 600 points today?
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Why Sensex lost around 600 points today?
The risk of a multi-billion-dollar debt default by Dubai World has raised concerns in India like many other world economies.
The state-run Dubai World stunned the global financial world on Thursday when it announced it would need to restructure its debt, estimated at $59 billion, to preempt default and asked creditors for a six-month deferment.
Source - hindustantimes.com
The United Arab Emirate (UAE) has total debt amounting to $184 billion at the end of 2009, according to estimates by Bank of America-Merrill Lynch, which said the region faces a heavy redemption schedule until 2013. Dubai's shock announcement this week that it is seeking to suspend payments on debt of its state-owned conglomerate Dubai World and property subsidiary Nakheel has roiled global markets, raising fears that the emirate which funded a spectacular building boom on a mountain of debt could default.
BofA-Merrill Lynch said in a report that the restructuring undertaken by Dubai would be a serious blow to the Gulf region's economic recovery prospects, adding that the scale of the region's debt was now the issue.
"The lack of official debt data may add up to uncertainty and cause higher risk premiums," it said.
Of the $184 billion UAE debt, Dubai holds $88 billion while Abu Dhabi accounts for $90 billion. BofA-Merrill Lynch said the debt servicing cost will be higher than these estimates as their numbers only include the principal payments.
The bank said Dubai faces almost $50 billion of debt amortization in the next three years: $12 billion in 2010, $19 billion in 2011 and $18 billion in 2012.
"We estimate the total debt for Dubai World as $26.5 billion, 80 percent of which needs to be paid back in the next three years," added BofA-Merrill.
Source - economictimes.com
Cut to Junk
Emaar Properties PJSC, the U.A.E.’s biggest developer, Jebel Ali Free Zone, an operator of business parks, DIFC Investments and Dubai Holding Commercial Operations Group LLC. were all cut to below investment-grade ratings by Moody’s. DP World Ltd., the Middle East’s biggest port operator, and Dubai Electricity & Water Authority were lowered to Baa2, two levels above junk.
S&P, which doesn’t rate Dubai Electricity & Water, lowered the ratings on the other five companies to BBB+ or BBB-, three levels and one level above junk, respectively. S&P and Moody’s said they may cut the ratings further.
The debt “restructuring may be considered a default under our default criteria,” S&P said in a statement.
Source - bloomberg.com