Saturday, March 27, 2010

Strategy Update Dubai – Close Exposure to Sovereign Credit $TLT $JNK

The risk/reward profile of Dubai sovereign credit looks unattractive

We advise investors to unwind long exposure to the sovereign
Dubai World announced its plan for the ongoing restructuring on March 26 and anticipated that the whole process is likely to take several months.
The anticipation of a long restructuring process can hide lack of consensus on the announced terms, causing potential risks ahead. The Dubai Financial Support Fund has committed up to USD9.5 billion in new funds to support the debt restructuring process. Of this money, USD8 billion will go to Nakheel, while USD1.5 billion will be committed to its parent company, Dubai World. While USD5.7 billion had already been provided by the Abu Dhabi government last year, it is not clear where the additional USD3.8 will come from. The government also indicated that it will swap into equity USD10.1 billion of its claims on DW and Nakheel.


Dubai – Close Exposure to Sovereign Credit

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