Friday, November 27, 2009

Dubai World Credit Default Swaps at Post Lehman Levels

Credit coverage on Dubai bonds reached levels seen the week of Lehman Brothers' implosion. MarketWatch reported:

The spread on five-year Dubai World credit default swaps soared to 708.96 basis points in early afternoon activity, up 167.75 basis points from Thursday's close, according to CMA DataVision. That means it would cost nearly $709,000 a year to insure $10 million in debt against default.

Dubai Ports World is a subsidiary of Dubai World.. Reuters reported:

Dubai Ports World (DPW) five-year CDS rose to 818.5 bps from a Thursday close of 608.6 bps, CMA said.

That's $818,500 a year for coverage on $10 million in debt. The impact is UAE wide, but not at crisis levels.

Contracts on Abu Dhabi rose 23 basis points to 183.

The unease rippled slightly in the U.S. financial system. CDS prices rose 10 to 20 basis points, but nowhere near 2008 implosion levels.

(Thanks to Economic Policy Journal)

Update 9-6-10:
Dubai World's reorganization might produce 50 cents on the dollar under a forced sale scenario. Assets, previously stated as "ring fenced", are on the chopping block according to Reuters. Dubai World's CDS are roughly half the rate of a year ago, at 460 basis points. Might they soar again? Reuters projects problems with Dubai World debt to spill over into UAE sovereign debt. The question is how the Fed will wash money through the ECB to help our partner in the Persian Gulf.

Update 9-8-10 Dubai World sweetens debt offer. Bloomberg has a piece on the debt restructuring