Dubai Crisis impact on Indian Stock Market

Indian Highest foreign exchange earner is remittance and it has been higher than Indian exports and UAE forms 25% of the inflows into India. So any crisis in Dubai will have more impact for India than any other country in my view. Indian demand has come from its consumption and this has been possible due to large Indian work force working in Gulf region feeding rural demand in India.

Dubai, part of the oil-exporting United Arab Emirates, said on Wednesday it would ask creditors of state-owned Dubai World and Nakheel to agree to a standstill on billions of dollars of debt as a first step toward restructuring.

Dubai World, the conglomerate that led the emirate's expansion, had $59 billion of liabilities as of August, most of Dubai's total debt of $80 billion. Nakheel was the builder of three palm-shaped islands off Dubai.  

The news shook markets recovering from the collapse of the U.S. housing bubble and contagion that threatened to rupture the global financial system last year.

US was India’s biggest export destination until 2007-08, the emergence of oil-rich UAE as the biggest buyer of Indian goods, according to disaggregated data now available with the commerce ministry, is primarily because of a paradigm shift in the gems & jewellery business.
UAE pips US as India’s top export market http://www.financialexpress.com/news/UAE-pips-US-as-India-s-top-export-market/545394/

Nakheel has an equal joint venture with the country's largest realty firm DLF for developing townships. Nagarjuna Construction (NCC) has an exposure of about Rs 1000 crore in Dubai, data compiled by Religare Hichens Harrison shows   http://timesofindia.indiatimes.com/biz/india-business/Market-watching-UAE-funds-stake-in-Indian-cos/articleshow/5277102.cms

Indian exports to the UAE for the period 2006-2007 standing at $11.7 billion as compared to $7.33 billion in 2005-06.”

Read more: http://www.thaindian.com/newsportal/business/uae-emirate-attracts-indian-investors_10031127.html#ixzz0Y7VQ7mAL

UAE Ambassador Mohamed Sultan Abdulla Al Owais said UAE’s trade volume with India — $87 billion — represented more than half of India’s trade with Gulf Cooperation Council (GCC) member-countries.

Read more: http://www.thaindian.com/newsportal/business/uae-calls-for-greater-trade-ties-with-india_100267465.html#ixzz0Y7VoITk7

With dark clouds gathering around the global economy once again on concerns that two of Dubai-owned companies may default on their debt obligations, fledgling corporate India, which has begun spreading its wings globally in recent years, is feeling some impact here. India infrastructure companies especially have exposure to the Dubai economy and its once-booming real estate business.

Let’s run a status-check on which companies, especially in the infrastructure sector, are exposed to Dubai and how it may impact their businesses.

Nagarjuna Construction

YD Murthy, Executive VP - Finance of Nagarjuna Construction, said that the company has only one venture in Dubai, a 440-apartment project, and is going slow on it.

The company is also doing a Rs 100-crore water pipeline project at Dewa, Dubai. “There is no default payment problem at the Dewa project,” Murthy said. “The company’s Middle-East exposure is mostly to government-owned agencies,” he added.

Larsen & Toubro

Larsen & Toubro has exposure in multiple segments in Middle East, R Shankar Raman, Executive VP - Finance told CNBC-TV18. “The company has exposure in the hydro-power segment. Our total exposure to the Middle-East over the last two years is to the tune of USD 200 million,” he added.

Punj Lloyd

The infrastructure player has no exposure to Dubai or real estate exposure in UAE, Luv Chhabra, Director of Corporate Affairs at Punj Lloyd said. “We are doing only oil & gas projects in Abu Dhabi where there are no concerns at all,” he said. “40% of our order book comes from West Asia. The crisis has particularly hit the real estate sector in Dubai. No impact is expected in other states like UAE capital, Abu Dhabi.”

Voltas

MM Miyajiwala, Executive VP and CFO at Voltas, said the company is executing a Rs 900-crore project in Dubai as part of a joint venture where Voltas has 37% stake. “We are executing the project for Emaar and the client has fully funded the project. Thus, we are not anticipating any delays,” he said. “Our order book is primarily from Abu Dhabi and Qatar. Dubai also has not defaulted on any of our payments.”

Bank of Baroda

Bank of Baroda has some real estate exposure to Dubai accounting to 5–6% of its loan book but CMD MD Mallya there won’t be any impact. “Interest on all loans in Dubai have been paid till last due,” he said. “Bank of Baroda has 10 branches in the Gulf region. It has small banking exposure, mainly for remittances in the region.”

Mallya added that the bank also has exposure in Abu Dhabi, Ras-Al-Khaimah and Bahrain.

Unitech

The company said it had not exposure to Dubai real estate.

DLF

DLF has no exposure to Dubai, it said.

Indiabulls Real Estate

The company does not have any direct/indirect investment in Dubai and West Asia, it said. “Any of the Indiabulls Group companies and in particular Indiabulls Real Estate doesn’t have any direct or indirect investment in Dubai or Middle East,” the group stated in a release.

Hiranandani Group

The unlisted group is constructing a project in Dubai, 97% of which was already sold and 65% payment had been received, Chairman Niranjan Hiranandani said. “The Dubai market crash won’t have any negative impact on the company.”
Hiranandani added that Indian property prices should go up because of the Dubai market crash.

Omaxe

Omaxe is likely to exit its two real estate projects in Dubai. “We will soon decide on exiting the Dubai realty projects,” Dow Jones quoted Omaxe Chairman Rohtas Goel as saying.
“We had planned a Rs 2,850 crore investment in Dubai,” he said. “We have already paid Rs 50 crore to Nakheel as first instalment and may seek refund if we exit the Dubai project.” He added that Omaxe was yet to receive possession of any land from Nakheel.

HDIL

HDIL has no exposure to Dubai, it said.

SpiceJet

Dubai World’s investment arm, Istithmar, holds 13% stake in SpiceJet

Aban Offshore

The oil exploration company has deployed six rigs in West Asia.

Here’s how the stocks reacted on the indices. Prices are those trading at 14.00, Friday:

Company	Price	% Chg
Aban Offshore	1,215	7.70
HDIL	295.5	6.97
Indiabulls Real Estat	190.7	5.45
Bank of Baroda	517	5.44
SpiceJet	44.7	5.40
Nagarjuna Const	153.75	4.86
Omaxe	91.05	4.56
Punj Lloyd	197.05	4.44
DLF	339.1	4.28
Larsen & Toubro	1,562.10	4.20
Unitech	3.05	3.95
Voltas	162	3.31
Hiranandani Group

http://www.moneycontrol.com/news/business/dubai-crisis-which-indian-companies-may-be-affected_427638.html

Dubai debt delay rattles UK, Europe banks

http://in.reuters.com/article/businessNews/idINIndia-44273320091126?pageNumber=1&virtualBrandChannel=0

LONDON (Reuters) - European banks were hit by concern about potential exposure to debt problems in Dubai on Thursday, while companies where Middle Eastern investors own big stakes also came under pressure.

Dubai, whose extravagant building projects have been largely put on hold since the start of the global financial crisis, said on Wednesday it would ask creditors at its flagship firms Dubai World and property developer Nakheel to delay repayment on billions of dollars of debt.

By 1230 GMT on Thursday the DJ Stoxx European bank index was down 3.3 percent at 222 points, putting it on track for its biggest daily fall since June.

Companies with significant Middle Eastern shareholders, such as the London Stock Exchange, were also hit by concern the holdings could be cut to meet obligations at home.

"The worry is about the exposure of the banks given the rapid pace of expansion in Dubai and around the area in the last few years," said one bank analyst, who asked not to be named.

Among the biggest fallers were HSBC, Royal Bank of Scotland , Lloyds Banking Group and ING, whose shares all fell over 4 percent.

They were among nine banks who were bookrunners on an outstanding $5.5 billion syndicate loan to Dubai World in June 2008, according to Thomson Reuters LPC data. Banks may have sold down or increased their loan exposure in the secondary market, and one analyst estimated that bookrunners typically retain only about 10-15 percent of a loan or bonds.

HSBC, RBS and Lloyds all declined to comment. ING said it had a negligible exposure to Dubai World bonds and saw no reason to divert from current guidance on risk costs for next quarters.

World Markets Into Downspin After Dubai Debt Problems http://tanmaygopal.blogspot.com/2009/11/world-markets-into-downspin-after-dubai.html

Moody's maintains negative fundamental credit outlook for India bks

MUMBAI - Fundamental credit outlook for the Indian banking system remains negative, reflecting rising "problem loans", asset quality concerns and changing economic conditions, ratings agency Moody's Investors Service said in its latest report.

    In January, the agency had revised the rating to negative from stable. Moody's said its main concern for the sector was deteriorating asset quality and volume of restructured loans, even when seen in the context of the global economic slowdown.

    "The rapid expansion of retail lending in recent years, combined with the slowdown of the Indian economy, has led to increased delinquency rates, especially for unsecured retail loans. Concurrently, the future performance of restructured loans will determine the evolution of the NPL trend in India," Moody's said.

    In 2008-09 (Apr-Mar), the absolute level of gross non-performing loans for all Indian commercial banks increased 22.5%, compared with 11.9% the year before.

Moody’s cautions India on non-performing loans

Deteriorating credit conditions in India’s banking system over the coming months have raised concerns about a hefty increase in problem loans and weakening bank profitability, ratings agency Moody’s warned on Monday.

Do read the whole article about Moody's report on FT web site :- http://www.ft.com/cms/s/0/2c22d244-d81e-11de-8b04-00144feabdc0.html

A tale of two American economies

While the United States recently reported 3.5 per cent GDP growth in the third quarter, suggesting that the most severe recession since the Great Depression is over, the American economy is actually much weaker than official data suggest. In fact, official measures of GDP may grossly overstate growth in the economy, as they don't capture the fact that business sentiment among small firms is abysmal and their output is still falling sharply. Properly corrected for this, third-quarter GDP may have been 2 per cent rather than 3.5 per cent.

The story of the U.S. is, indeed, one of two economies. There is a smaller one that is slowly recovering and a larger one that is still in a deep and persistent downturn.

Consider the following facts. While America's official unemployment rate is already 10.2 per cent, the figure jumps to a whopping 17.5 per cent when discouraged workers and partially employed workers are included. And, while data from firms suggest that job losses in the past three months were about 600,000, household surveys, which include self-employed workers and small entrepreneurs, suggest a number above two million.

Moreover, the total effect on labour income – the product of jobs times hours worked times average hourly wages – has been more severe than that implied by the job losses alone, because many firms are cutting their workers' hours, placing them on furlough or lowering their wages as a way to share the pain.

Many of the lost jobs – in construction, finance, and outsourced manufacturing and services – are gone forever, and recent studies suggest that a quarter of U.S. jobs can be fully outsourced over time to other countries. Thus, a growing proportion of the work force – often below the radar screen of official statistics – is losing hope of finding gainful employment, while the unemployment rate (especially for poor, unskilled workers) will remain high for a much longer period of time than in previous recessions.

Consider also the credit markets. Prime borrowers with good credit scores and investment-grade firms are not experiencing a credit crunch at this point, as the former have access to mortgages and consumer credit while the latter have access to bond and equity markets.

But non-prime borrowers – about one-third of U.S. households – do not have much access to mortgages and credit cards. They live from paycheque to paycheque – often a shrinking paycheque, owing to the decline in hourly wages and hours worked. And the credit crunch for non-investment-grade firms and smaller firms, which rely mostly on access to bank loans rather than capital markets, is still severe.

Or consider bankruptcies and defaults by households and firms. Larger firms – even those with large debt problems – can refinance their excessive liabilities in or out of court, but an unprecedented number of small businesses are going bankrupt. The same holds for households, with millions of weaker and poorer borrowers defaulting on mortgages, credit cards, auto loans, student loans and other consumer credit.

Consider also what is happening to private consumption and retail sales. Recent monthly figures suggest a rise in retail sales. But, because the official statistics capture mostly sales by larger retailers and exclude the fall by hundreds of thousands of smaller stores and businesses that have failed, consumption looks better than it really is.

And, while higher-income and wealthier households have a buffer of savings to smooth consumption and avoid having to increase savings, most lower-income households must save more, as banks and other lenders cut back on home-equity loans and lower limits on credit cards. As a result, the household savings rate has risen from zero to 4 per cent of disposable income. But it must rise further, to 8 per cent, in order to reduce the high leverage of the household sector.

To be sure, the U.S. government is increasing its budget deficits to put a floor under demand. But most state and local governments that have experienced a collapse in tax revenues must sharply retrench spending by firing policemen, teachers and firefighters while also cutting welfare benefits and social services for the poor. Many state and local governments in poorer regions are at risk of bankruptcy without a massive federal bailout.

Moreover, income and wealth inequality is rising again. Poorer households are at greater risk of unemployment, falling wages or reductions in hours worked, all leading to lower labour income, whereas on Wall Street, outrageous bonuses have returned with a vengeance. With the stock market rising and home prices still falling, the wealthy are becoming richer, while the middle class and the poor – whose main wealth is a house rather than equities – are becoming poorer and being saddled with an unsustainable debt burden.

So, while the United States may technically be close to the end of a severe recession, most of America is facing a near-depression. Little wonder, then, that few Americans believe that what walks like a duck and quacks like a duck is actually the phoenix of recovery.

China Will Have Own Bubble to Confront, Pimco’s Bill Gross Says
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said Chinese growth is likely to be hurt by an absence of consumer demand from trading partners such as the U.S. “The Chinese, I suspect, will have a bubble of their own to confront,” Gross said in a Bloomberg Television interview yesterday from Pimco’s headquarters in Newport Beach, California. “It’s gearing up for export that doesn’t find an end consumer, that’s the real problem in China.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=a.rxGk3cg9qA&pos=2

Big property bubble forming in China, warns leading developer http://www.ft.com/cms/s/0/bcf0ced2-d4ab-11de-a935-00144feabdc0.html?nclick_check=1


The Fed is in a dilemma as unemployment is already in double digits and likely to stay close to that for the next 6 months even if jobs are created in months to come. Experts feel China may abandon its dollar peg within six months' time and the easy monetary policy that China has followed may end the mini-bubbles of lending and asset appreciation. China has kept its currency at about 6.83 per dollar since July 2008 to help sustain exports amid a global economic slump.

China’s trade surplus in October almost doubled from the previous month, to $24 billion. The nation, with the world’s largest foreign-exchange reserves of $2.3 trillion, is the biggest creditor to the U.S., holding $798.9 billion of Treasuries as of September.

“With renewed upward appreciation of the yuan may come potentially volatile global asset price reactions to the downside -- higher Treasury yields, and lower stock prices -- which the Fed must surely be leery of before making any upward move, of its own,” Gross wrote.

Banks asked to disclose to customer’s fees, commissions received from mutual funds

Positive:

Mutual funds has been best source of investment and the industry in India has been growing very fast, but as always any fast growth will have side effect and we have seen intermediaries benefit more by mis-selling products promising high return as these have been long term investment many investor had their own dreams about the investment and when real situation was entirely different. ULIPS is where many investors were mis-guided and now IRDA, SEBI and RBI have done their best to protect investor interest and it is time we as investor also read more about the schemes before we invest.

Negative:

Many private Banks fee based income was based on selling and cross selling many products and this proposal would be temporary setback. Fee based income in Private banks are more than interest income.

Speed-breaker

A senior official with a public sector bank said henceforth, banks cannot recklessly push financial products which earn them higher commissions without bothering whether the product is beneficial to the customer or not.

http://www.thehindubusinessline.com/2009/11/17/stories/2009111752070100.htm

In a move to curb mis-selling of financial products and ensure transparency, the Reserve Bank of India on Monday asked banks to disclose to their customers details of the commissions and other fees received by them while selling mutual funds and insurance policies.

From now customers will know how much banks are earning from every mutual fund or insurance product that is sold to them.

In a circular issued to banks, RBI said. “…it is likely that banks may be marketing/referring, several competing products of various mutual fund/insurance/financial companies to their customers. Keeping in view the need for transparency in the interest of the customers to whom the products are being marketed/referred, it has since been decided that banks should disclose to the customers, details of all the commissions/other fees (in any form) received, if any, from the various mutual fund/insurance/other financial companies for marketing/referring their products.”

In addition, RBI said that banks will have to disclose commission details while offering referral services for financial products, non-discretionary investment advisory services and portfolio management services through their subsidiaries. A senior official with a public sector bank said henceforth, banks cannot recklessly push financial products which earn them higher commissions without bothering whether the product is beneficial to the customer or not.

This move will empower the customer as he will be in a position to know which product is fetching how much commission for the bank.

According to mutual fund industry officials, around 40 per cent of total mutual fund sales come through banks.

Currently, banks are allowed to market policies of multiple mutual funds. However, they are allowed to sell policies of only one life insurer and one general insurer.

Incidentally, IRDA is considering allowing banks to sell policies of multiple insurance companies. However, some insurers have raised concerns about the possible mis-selling by banks.

Insurance brokers had even met the RBI Governor to express their concerns on this proposed move to allow banks to market products of multiple insurance companies. The RBI move would alleviate these concerns.

India’s Cash Iron-Ore Price for China May Rise as Supplies Fall

IRONORE price hike may benefit SESAGOA but many Indian STEEL producers may face pressure on margin due to high ORE price and closure of 69Mines in Orissa.

http://www.bloomberg.com/apps/news?pid=20601091&sid=aV7mQc8Cy680

Nov. 13 (Bloomberg) -- India’s iron-ore price for cash sales to China may rise about 4 percent this month as supplies shrink from one of India’s biggest producing states following a government directive to mines to halt work.

Prices may climb to $110 a metric ton by the end of November from $106 a ton at present, R.K. Sharma, secretary general of the Federation of Indian Mineral Industries, said today. The government of Orissa, which exports about 13 percent of India’s ore, issued notices to 69 companies, including ore mines, because of environment concerns, Ashok Mohadeo Rao Dalwai, the state government’s steel and mines secretary, said today.

Total iron ore imports by China, the world’s biggest buyer, rose 37 percent to 514.8 million tons in the first 10 months of 2009 from a year earlier, the customs office said on Nov. 11.

Cash prices for Indian 63.5 percent benchmark iron ore exported to China rose above $100 a ton this week on higher freight costs, increased Chinese demand and disruptions to Indian supply, Commonwealth Bank of Australia said yesterday.

“Imported fines prices could hold these levels or increase further in the short term if India’s authorities continue their clampdown on licenses and permits in the iron ore export sector,” Commonwealth Bank analysts David Moore and Lachlan Shaw said in a report.

The Orissa government is inspecting all the mining companies in the state for forest and environment violations, Dalwai said. More iron ore miners in Orissa may lower production following the scrutiny, Sharma said today.

Steel Plant Information

Plant capacity data and analysis from James King

http://www.steelonthenet.com/plant.html

World's Largest Iron Ore Producers, early 2009

Company	Base	Capacity mt/yr
CVRD Group	Brazil	323.8
Rio Tinto Group	UK	209.3
BHP Billiton Group	Australia	151.6
Mittal Arcelor	UK	74.6
Privat Intertrading	Ukraine	46.0
Metalloinvest	Russia	44.1
Metinvest Holding	Ukraine	38.6
Anshan Iron & Steel	China	37.0
Evrazholding	Russia	36.5
Cleveland Cliffs	USA	34.8
LKAB	Sweden	32.0
CVG Group	Venezuela	30.7
Anglo American	South Africa	30.6
Imidro Group	Iran	29.4
CSN Group	Brazil	27.6
Shougang Beijing Group	China	25.5
NMDC Group	India	24.6
US Steel	USA	20.7
ENRC - Eurasian Natural Resources	Kazakhstan	19.4
Severstal	Russia	17.3
Total capacity		1615.5

World's Largest Flat Product Producers, early 2009

Company	Base	Capacity mt/yr
Mittal Arcelor	UK	103.1
US Steel Group	USA	31.6
Nippon Steel	Japan	29.9
JFE Steel Group	Japan	29.7
Posco Group	Korea	25.6
Shanghai Baosteel Group	China	20.1
Thyssen Krupp Stahl	Germany	18.2
Tata Corus Group	India	16.6
China Steel Group	Taiwan	12.7
Riva Group	Italy	12.0
Magnitogorsk (MMK)	Russia	11.6
Nucor Group	USA	10.1
Severstal	Russia	9.8
Wuhan	China	9.6
AK Steel	USA	9.0
Anshan Iron & Steel	China	8.5
NLMK	Russia	8.5
Usiminas Group	Brazil	7.9
Ternium	Mexico	7.8
SAIL	India	7.5
Total	World	620.0

World's Largest Steel Long Product Producers, early 2009

Company	Base	Capacity mt/yr
Mittal Arcelor	UK	47.3
Gerdau Group	Brazil	19.5
Evrazholding	Russia	14.7
Tata Corus	India	10.7
Nippon Steel	Japan	10.5
Industrial Union of Donbass	Ukraine	10.1
JFE Steel Group	Japan	9.5
Nucor Group	USA	8.9
Riva Group	Italy	8.6
Celsa Group	Spain	8.2
Tangshan	China	7.0
Hyundai Group	Korea	6.7
Severstal Group	Russia	6.6
Shougang Beijing	China	6.5
Sumitomo Group	Japan	5.8
Imidro Group	Iran	5.6
Shanghai Baosteel	China	5.5
Pingxiang	China	4.6
Techint Group	Italy	4.4
Baotou Iron and Steel	China	4.4
Total	World	595.8