Heavy rain pounded Dubai on Sunday adding to the gloom of the emirate's debt woes a day before the deadline of the $3.52 billion bond by state-owned developer Nakheel, with no word on how it will be handled. Dubai's stock market did soar for a second consecutive session on Sunday as traders reacted to a surge in Nakheel's bond price last week on mounting speculation it will repay. The Islamic bonds, or sukuk, had been trading around 110 cents to the dollar before the government shocked investors on Nov. 25 with a request for a six-month standstill on the debt of state-linked Dubai World. The announcement sent the sukuk down to mid-40 lows, but closed on Friday at about 54 cents to the dollar. Fund managers and bankers regard Monday's outcome as the litmus test for Dubai World's planned $26 billion restructuring and Dubai as a whole for resolving its debt burden. But the odds of Nakheel, the developer of palm-shaped islands, repaying are low. "It's very hopeful people (speculating)," says a Dubai-based fund manager. "It seems very strange that if Dubai World intended to pay they would have gone through the last two weeks of pain." A sudden u-turn and repayment would placate disappointed and confused investors in the immediate term. Dubai's handling of the situation has tarnished its reputation. Dubai's finance chief on Thursday tried to reassure investors saying its actions were more important than its public image. But, Dubai World has few options. "The key thing is the lack of clarity," said Nish Popat, ING's head of fixed income in the Middle East. "What's needed more than anything else is some sort of information to understand what the plans are going forward and how they are progressing." Reflecting rising repayment hopes, five-year credit default swaps for Dubai fell more than 30 basis points on Friday to 533 basis points, according to CDS monitor CMA DataVision, compared with a peak of almost 700 bps at the end of November. The level is still high given the CDS was quoted at about 300 bps before the Nov. 25 announcement. "The CDS spreads are better, and news of a hedge fund buying into Nakheel - this is all positive ... even if you buy Nakheel at 50, and they pay out 70, you're still making good money," said a banker from a Dubai government-controlled lender. If Nakheel does not pay on Monday, it would technically be in default, but it would still give its restructuring team a two-week grace period to reach an agreement with creditors. Dec. 28 is the final cut off point. After that a cross default clause in its original prospectus will be triggered that covers Nakheel and its guarantor Dubai World, adding to the overall debt burden. Regional markets have been struggling for weeks under the issue. "Prices are so distorted right now," said Haissam Arabi chief executive at Gulfmena Alternative Investments. "Tomorrow is a big day, until we get some clarity (about Dubai's debt) there will be no real trend. The main catalyst we are waiting for is Nakheel news." STRIKING A DEAL Analysts have speculated Nakheel could repay its bond at 70 cents to a dollar and issue new debt for the remainder. "Such an outcome would be beneficial for both parties involved," EFG Hermes analyst Fahd Iqbal wrote in a research report. "Creditors would receive a portion of their money back with a promise for the remainder to be delivered at a later stage while Dubai World, along with other government related parties, would have continued access to capital markets." With time running out for a deal on Nakheel's bond, bondholders may have to accept some impairment, leaving Dubai World free to negotiate with longer-term debt holders. But vociferous minority holders of Nakheel's bond are still demanding repayment, which could lead to potentially damage larger claims. The third option is for Dubai World to outline details of its restructuring plans and announce a standstill agreement with its creditors. This would make Nakheel's bond date irrelevant in the grand scheme of things and buy valuable time for Dubai. "It would bring confidence if there is a settlement of good faith or they restructure or they pay, but the rest will linger as there is debt outstanding to corporates, contractors and all kinds of creditors," said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh. Dubai's government and affiliated firms owe non-financial Japanese companies roughly $7.5 billion in credit that had not been collected as of Oct. 31, a study by Japan's government showed. In addition, fears that Dubai's debt problems are not limited to the state-linked firm has already battered investor confidence. In February, Borse Dubai has $2.5 billion of debt maturing, while Dubai ruler's own firm Dubai Holding will face almost $1.9 billion of debt repayments in the first half of 2010. "There is no precedent for such a situation in the region - tomorrow is D-Day," said one banker.
World Bank Group president Robert Zoellick on Friday said it is willing to help Indian companies operating in developing countries. He projected the South-South trade to rise, while forecasting India would return to 8-9% growth rate in two years. "There may be an opportunity for us to help Indian companies operating in other developing countries," he said. "We are going to see much of the South-South business and trade." Zoellick said he was committed to get additional resources for India. "I had the opportunity this morning to speak to the Prime Minister how fully committed I am in trying to get India more financial resources from the World Bank Group," he said, concluding his four-day trip to India. The World Bank is currently working on projects of more than $22 billion in the country, including a $3.6-billion loan from its arm International Finance Corporation, which funds private projects.
Vodafone has sought an extension until Jan. 29 to reply to a tax claim notice issued last month by the Indian tax department, Minister of State for Finance S.S. Palanimanickam said on Friday in a written reply to question in parliament.
On Oct. 30, India's tax department issued the notice to Vodafone over its $11.2 billion purchase of Hutchison Telecom's Indian operations in 2007, and had said the British firm needed to comply by Nov. 16.
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Reuters - Prime Minister Manmohan Singh arrives in Washington on Monday for a state visit set to boost the burgeoning economic relationship between two countries, which had relatively marginal commercial dealings a decade ago.
Following are key aspects of economic ties that took off with the end of the Cold War and the embrace of economic reforms by India -- an adoption of market-friendly policies in which Singh played a prominent role earlier in his career:
BILATERAL TRADE - Two-way trade, just $5 billion in 1990, reached $14 billion in 2000 and rose to nearly $50 billion last year, according to U.S. figures, making the United States India's largest trading partner. The United States sells India aircraft and parts, advanced machinery, cotton, fertilizers, and computer hardware.
It imports Indian textiles and leather goods, Internet services, agricultural products, gems, leather products, and chemicals. India reckons trade has at least doubled in the past five years, while U.S. exports to India have tripled in that period.
INVESTMENT - U.S. cumulative direct investments through mid-2008 of nearly $16 billion in power and oil refineries, telecommunications, electronics, food processing and services make the United States one of India's largest investors, according to U.S. statistics.
The Indian embassy lists the United States as the largest portfolio investor in India. U.S.-bound investment from India has grown about 75 percent annually since 2002, the embassy says.
INFORMATION TECHNOLOGY - India says two in five of America's Fortune 500 companies outsource their software in India. With India's growing wealth, the telecom sector has grown about 20 percent a year in recent years.
India has courted investment in the sector, projecting that it needs some $84 billion worth of telecoms equipment to hit its target of 650 million subscribers by 2012. The U.S. hi-tech regions of the Silicon Valley in California and Route 128 Corridor in Massachusetts have deep ties with their Indian counterparts, Bangalore and Hyderabad.
NUCLEAR POWER - The 2005 U.S.-India Civil Nuclear Agreement, which eases strictures on U.S. nuclear exports to India, opens India's potential $150 billion market in power plants. This offers potential for big deals for U.S. nuclear reactor builders such as General Electric Co and Westinghouse Electric Co, a subsidiary of Japan's Toshiba Corp.
ARMS SALES - India's embassy says U.S. arms sales to India have risen from almost nothing a few years to about $3.5 billion last year. The United States is competing with Europe and Russia to supply India 126 multi-role fighter aircraft worth up to $10.4 billion, the biggest such market in decades.
In March, the Obama administration approved a $2.1 billion sale to India of eight Boeing Co P-8I maritime patrol aircraft, the largest U.S. arms transfer to India to date. In January 2008, Washington and New Delhi clinched India's previous largest U.S. arms purchase -- six Lockheed Martin Corp C-130J Super Hercules military transport planes valued at about $1 billion, including related gear, training and spares.
