Tags: dubai | world | confidence

Confidence Test Still Ahead on Dubai World Problems

By Hans Parisis
Friday, 04 Dec 2009 09:40 AM Current | Bio | Archive

On Dubai, the UK newspaper the Guardian writes this morning that creditors of Dubai World are expected to reject the standstill agreement proposed by the company, which would threaten to drag out negotiations over the $26 billion worth of the conglomerate's debt.

Advisers involved in the talks said that the process could take months as more than 100 accountants, lawyers, bankers and other professionals descended on Dubai from London. “There won't be a standstill agreement,” one said.

By rejecting Dubai World’s proposal to put interest payments on hold this month, creditors would automatically trigger a default and that would lead to inevitable further wrangling. Creditors, including the UK banks RBS, HSBC, and Standard Chartered as well as hedge funds may be in a weaker position than they would be in the UK, which has a more creditor-friendly legal environment.

Suing Dubai World, in Dubai, over Dubai-based assets will be legally very expensive and will move very slowly. It is not expected that creditors will present a united front; some might want to swap some debt for assets, thereby holding on to them in the hope that the market will recover, while others will want cash.

Standard & Poor's already downgraded six Dubai government related entities (GREs) as it “revised its expectation for the likelihood of extraordinary support from the Dubai government to low.” The six Dubai GREs are:

• DIFC Investments (which owns the Art Dubai show)

• Ports operator DP World

• Jebel Ali Free Zone (where 6,100 companies conduct business)

• Commodities market Dubai Multi Commodities Centre Authority

• Dubai Holding Commercial Operations Group (an investment company)

• Property developer Emaar Properties.

Now, according to Essa Jawahery, a lawyer at Elham Ali Hassan & Associates in Manama, British bondholders with a stake in Dubai property firm Nakheel should take into account that legal action to recover assets may be a waste of time because a victory under British law would not necessarily guarantee the return of assets.

“Once the English court gives the judgment, bringing it to Dubai to enforce it might be difficult because it's not possible to take execution measures on property owned by the government or the ruling family,” he says. Yes, the Dubai problems for international investors and their unavoidable negative consequences will destroy a lot of confidence, once again.

On the US stock markets this morning, I would like to say the following: Yesterday at the close, the S&P 500 ETF (SPY) got hit with some late selling pressure probably because of today’s (8:30 AM N.Y. time) employment report.

Because of that we will see two variables at work: the actual report and traders’ reaction to the report. Whatever is said, to me what counts is Wall Street’s reaction to the report. At the open, I think we could see a ‘gap’ and, of course, it’s more important what happens after that gap at the open.

Remember the gap last Friday? SPY gapped down, bottomed in the first 10 minutes and recovered half the gap by 11AM. There was no follow through after the gap.

So, traders, on your marks… Careful, trading is not for long term investors! They’ll have to wait until a new trend establishes. Don’t worry, it will come.

On the SPY 60-minute chart, the SPY broke support within the trading range. No doubt this is negative, but we have yet to see an actual range break. SPY even pushed to 112 a couple times yesterday, but could not hold these gains and fell back.

At this stage, Wall Street’s reaction to the employment report holds the next key.

• A gap down and follow through below 109 would be bearish.

• A gap up and follow though above resistance would be bullish.

• A gap either way and close within the trading range would keep SPY and the S&P 500 in limbo.

We’ll see what happens.

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On Dubai, the UK newspaper the Guardian writes this morning that creditors of Dubai World are expected to reject the standstill agreement proposed by the company, which would threaten to drag out negotiations over the $26 billion worth of the conglomerate's debt. Advisers...
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