The UAE’s Island Retreat Reflections
UAE shares rose through mid February after MSCI’s upgrade postponement as Abu Dhabi committed to proceed with showcase projects including an artificial island with delays after extending another $5 billion lifeline to ailing property developer Aldar in which wealth fund Mubadala has a large stake. Debt restructurings have swept that emirate as well as Dubai, with a halt in construction hitting family-run groups and private capital providers. Both local and foreign banks are exposed as in neighboring Dubai, with entire country claims two-thirds from Europe coming to $150 billion by the latest BIS data. Emirates NDB has one-quarter of its loan book with Dubai’s government-related corporate complex as total debt is $100 billion or 125 percent of GDP, according to Moody’s. $15 billion must be repaid this year as serial reschedulings following the DW deal are under negotiation and may involve bondholder haircuts for the first time. The international financial center and Jebel Ali free trade zone each have large redemptions upcoming that officials intend to refinance without seeking Abu Dhabi’s aid. Real estate values are at half the 2008 peak and economic growth is put at 3 percent even with the benefit of Arab spring diverted financial services, property and tourism flows. The twin stock exchanges are still attempting consolidation on lackluster volume that brought a wave of broker closures in past months. Their size ranks behind other GCC members, with Qatar at over $100 billion capitalization only kept at frontier status by festering foreign ownership limits.
In Lebanon stocks are flat on a 10-15 percent luxury real estate correction as growth was just over 1 percent in 2011 on slow formation of a government coalition and the fallout from Syrian conflict next door. Commercial bank lines at risk there through a half-dozen subsidiaries amount to $7.5 billion and Middle East-North Africa financial and current account links otherwise account for 40 percent of the total, according to the annual IMF Article IV report. Headline inflation was 5 percent last year and may stay up on wage and VAT hikes as a history of primary budget surpluses fades. Electricity and infrastructure spending represent big outlays and with public debt at 135 percent of GDP covering the overall deficit has invited “difficulties” with banks reluctant to take short-term paper. A $1.5 billion Eurobond operation combining a swap and new issuance several months ago was “appropriate” in the Fund’s view, but local interest rates should rise to ensure pound liquidity. The exchange rate peg has provided stability but lifts the bar for unrealized business and labor competitive changes reflecting another mass of regional drift, the analysis comments.
