DUBAI: Markets in the United Arab Emirates gave a weary welcome to a long-awaited debt deal with Dubai World, with investors worried about a sluggish economic recovery and the fallout from Greece’s debt problems.
Volatile global markets weighed on sentiment, while investors remain unsure whether local banks will take provisions on Dubai World and resume lending despite Thursday’s agreement.
Dubai’s index is the worst performing Gulf Arab index this year, down around 6 percent since the start.
"As global volatility increases, we become more correlated to global moves and we need more clarity on the euro zone before we can start outperforming on the back of the restructuring," said Matthew Wakeman, EFG-Hermes managing director for cash and equity-linked trading.
A resolution to the Dubai debacle was widely expected. "The whisper numbers were pretty much accurate, so it was the worst kept secret in town," he said.
Abu Dhabi Commercial Bank gave up initial gains to dip 0.5 percent at 0820 GMT and Emirates NBD was untraded. This duo are the two domestic lenders on a Dubai World creditors’ committee.
The indebted conglomerate has agreed a deal in principle with core creditors to restructure $23.5 billion in debt.
The proposal covers $14.4 billion owed to the bank lenders and offers repayment over a five- or eight-year period.
"As far as stock markets are concerned the most important factor is that banks may not need to book provisions now," said Yazan Abdeen, a fund manager at ING Investment Management.
"But the loans will not be repaid immediately so the question of liquidity in the banking system still remains."
Dubai’s index is up 0.7 percent at 0906 GMT, but is down 9.8 percent since surging 6.3 percent in two days after Dubai World made its first offer to creditors on March 25. Abu Dhabi’s benchmark was up 0.2 percent at 0812 GMT.
Dubai’s five-year credit default swaps eased to 466.8 basis points from its previous close of 470 bps, according to CDS monitor CMA DataVision.
"I think most of the positive sentiment was priced in February and March," said Robert McKinnon, ASAS Capital chief investment officer.
"The market will start to look for what the follow-on effects for specific companies like Arabtec and Drake & Scull will be and for general liquidity in the economy. The market wants to see if this will re-grease the system."
Arabtec climbed 2.6 percent, a day after saying it had signed onto Dubai World property unit Nakheel’s debt repayment offer to trade creditors.
These have been offered offered full repayment, with 40 percent in cash and the rest with an Islamic bond, or sukuk, which has a 10 percent annual return.
Middle East stocks have fallen in recent weeks, tracking declines on international markets as Greece’s debt crisis and a plunging euro currency spurred investors to dump riskier assets.
Investors fear the euro-zone’s troubles could impact demand for the Middle East’s oil and petrochemical products, said Zahed Chowdhury of Al Mal Capital.