The Dubai Financial Market dropped to a fresh seven-year low of 1,355 yesterday weighed down by the rapidly deteriorating eurozone debt crisis and further fall-out in the local financial sector with job cuts at Shuaa Capital and Global Investment House asking investors for a second renegotiation of payments due on its $1.7 bond program.
Once among the largest Gulf investment banks, Global wants repayments due next April postponed for two months. But according to sources cited in The National the bank will ‘ask bondholders to defer principal and interest payments, and accept smaller interest payments in exchange for cash sweeteners’.
Global problem
Global defaulted on a $200 million bond in December 2008 in the global financial crisis. The bank is arguing now that the deteriorating global economy is going to make it hard to repay its debts because asset prices are falling.
News of such solvency issues are bad for confidence in the wider Gulf banking system where many analysts still fear that the true extent of losses from the 2008 crash have not been fully accounted for on balance sheets, and it is true that a second recession was not anticipated.
On the same day Dubai’s largest investment bank Shuaa Capital reported that it would be making further redundancies and reduce its brokerage business. Half of the brokers in Dubai have closed in the past year because of the very low volume of business in the DFM. Shuaa has not posted a profit since 2007.
Separately the privately-held Abu Dhabi contractor Al Jaber Group yesterday appointed Mike Grant of The Aaronite Partnership as chief restructuring officer to reschedule its borrowings which are unknown, though last year Al Jaber said it was having trouble raising finance for $4.4 billion worth of projects. Main creditors are HSBC, ADCB, RBS and UNB.
Tough times
These are clearly very tough times for investment banks in the Gulf region as in the rest of the world with even Goldman Sachs recently posting only its second loss in 12 years as a public company.
It does not take much imagination to reason that things are likely to get worse before they get better. ArabianMoney does not see a solution to the eurozone sovereign debt crisis on the horizon and the unrolling of this crisis will only compound local problems in the Gulf.
Therefore we are likely to see more redundancies and emergency debt rescheduling calls over the coming months. Eventually all crises hit a bottom but we do not seem to be there yet.
