By Zainab Fattah and Haris Anwar
Feb. 23 (Bloomberg) -- Dubai shares surged the most in three months after the United Arab Emirates’ central bank bought $10 billion of Dubai bonds, easing concern that the emirate’s companies will be unable to refinance debt.
Dubai Financial Market PJSC, owner of the stock exchange, advanced the most since October, while Emaar Properties PJSC, Dubai’s biggest real-estate developer, climbed the most since Nov. 17. The cost of protecting five-year Dubai government bonds against default fell to the lowest since Feb. 3.
Dubai, home to the world’s tallest building, most expensive hotel suite and largest manmade islands, needs help to repay $15 billion of debt maturing this year, Moody’s Investors Service said this month. The U.A.E. central bank is charging Dubai annual interest of just 4 percent on the five-year unsecured bonds, a tenth of the 40 percent yield on bonds sold by government-owned real-estate developer Nakheel Development PJSC, according to data compiled by Bloomberg.
“This is the kind of support the market was looking for,” said Rami Sidani, who manages $250 million as head of Middle East and North Africa investments at Schroders Investment Management Ltd. in Dubai. “The market was pricing in the probability of the whole economy going bankrupt, which is a misunderstanding of the relationship between Dubai and Abu Dhabi.”
Default Swaps
Dubai borrowed $80 billion to turn itself into a regional financial and tourism hub, according to government figures. Real-estate prices have fallen 25 percent in Dubai from September’s peak and 20 percent in Abu Dhabi, Morgan Stanley said in a Feb. 2 report. The decline comes as oil prices slumped more than 70 percent since the July record and scarce global credit pushed investors to dump assets in the emirate.
The U.A.E. central bank said yesterday it bought half of a planned $20 billion issue of 5-year unsecured notes. The statement didn’t provide details of plans for raising the remaining $10 billion.
The Dubai Financial Market General Index gained 7.9 percent to 1,652.98 at the close in Dubai, the biggest advance since Nov. 17. The measure has tumbled 72 percent in the last 12 months.
Dubai credit default swaps fell to 733 basis points from 898, according to data provided by CMA Datavision in London.
‘Clean Solution’
“This is the biggest news of the year for the regional bond market,” said Abdul Kadir Hussain, chief executive officer of Mashreq Capital, a unit of the U.A.E.’s fifth-biggest lender by assets. “This is a clean solution to Dubai’s short-term refinancing needs.”
Financial institutions worldwide have amassed $1.1 trillion of credit losses and writedowns and raised $991 billion of capital since the U.S. subprime mortgage market collapsed, data compiled by Bloomberg show. The U.S., Britain, France and Germany are among nations that have injected billions into banks to prevent a wider financial calamity.
“The package is exactly what it looks like - a clear and unequivocal statement of support from the federation for Dubai,” said Simon Williams, economist at HSBC Holdings Plc in Dubai. The Abu Dhabi Securities Exchange General Index added 1.1 percent, advancing for a fourth day.
Dubai Islamic Bank, the biggest U.A.E. lender complying with Muslim banking rules, gained 13 percent, the most since Jan. 5, to 1.97 dirhams. Dubai Financial Market, the first Gulf stock market to sell shares to the public, jumped 15 percent to 1.47 dirhams, its highest close since Nov. 20.
Emaar rose 15 percent to 2.17 dirhams, its biggest one-day gain since Nov. 17. The company said the bankruptcy filing of its U.S. unit John Laing Homes will not have a “significant” impact on first-quarter earnings.
“The economic outlook is still poor and 2009 will remain a very difficult year,” said HSBC’s Williams. “But the evidence that the U.A.E. is able and willing to offer support will reassure the market that the very worst will be avoided.”
To contact the reporter on this story: Zainab Fattah in Dubai on zfattah@bloomberg.netHaris Anwar in Dubai on Hanwar2@bloomberg.net
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