The Gulf’s Drill-Down Disappointments
As Gulf OPEC members gathered for their Vienna plenary with oil prices tipping below $100/barrel, serial setbacks convulsed the region still trying to grapple with Arab Spring aftershocks. Two years after skirting with default, Dubai was the subject of speculation that 2012’s estimated $10 billion debt load would be restructured under harsher terms than the DW work-out, potentially entailing bondholder haircuts. Government-linked companies remaining in trouble since Abu Dhabi’s $20 billion support injection, including various units of royal family-controlled Dubai Holding, have yet to reach definitive deals, and the recently-completed exchange of Nakheel obligations saw wholesale dumping of new instruments as creditors feared another write-down request. The government admitted upcoming payments would be “challenging,” but claimed it was preparing backup local bank credit lines and structured sukuks among other refinancing options. To instill confidence an internationally-modeled bankruptcy law is due to go into effect soon, as doubts surface that the neighboring emirate would again offer help as it cuts back and delays its own project pipeline, most notably the Saadiyat island cultural center and Guggenheim museum branch. Sheikh al-Nayan has doubled public sector salaries and unveiled a slew of housing and infrastructure programs that may call heavily on annual $100 billion petroleum revenue and sovereign wealth fund holdings. Earlier this year it issued a $3 billion Islamic sovereign bond to lay a foundation for near-term additional corporate borrowing. The UAE was again rejected for an MSCI bump to the core stock market rung on reservations about the delivery-versus-payment system but low volume was an implicit concern. Qatar too failed to make the grade on foreign investor restrictions despite natural gas-led GDP growth above 15 percent, with syndicated loan access and pricing suffering with the withdrawal of traditionally active European banks. Economic expansion is forecast to halve in 2012 with further resort to large-scale external debt issuance.
Saudi Arabia experienced an unaccustomed cabinet switch as the central bank governor moved to Economy Minister, while his successor was recruited from an investment banking and stock exchange background, which may presage additional opening. Both budget and current account surpluses are due to narrow, and a $150 billion stimulus package must be managed at home as well as $20 billion in aid to Bahrain and Oman under the provisions of a recent GCC summit. 5 percent inflation could beat GDP growth next year as the delicate transition to a new monarch unfolds. The regime continues to face terrorist incidents which may mount with the civil war on the border with Yemen. It also seeks to avoid the popular resentment spectacle of neighboring Kuwait, where the prime minister was dismissed after protesters crashed the parliament decrying corruption. Food costs there have risen 10 percent as the Gulf’s falling stock markets continue to cause indigestion.
