JEDDAH: Prince Alwaleed bin Talal, chairman of Kingdom Holding Company, said banks that loaned money to Dubai World can’t claim to be victims of the emirate’s debt crisis because they should have understood the risks.
“These banks are very mature banks, and they have to differentiate between a corporate loan and a sovereign loan,” Alwaleed said Tuesday in an interview on Bloomberg Television.
“When things go sour, you can’t have some banks in the West going to Dubai and saying ‘oops’ and crying wolf and saying, ‘You should have guaranteed those loans.’”
Dubai World, the state-controlled investment firm whose assets include a stake in Las Vegas company MGM Mirage, is seeking to reschedule payments on about $26 billion of debt.
Standard & Poor’s said on Oct. 15 there was a “significant” likelihood that Dubai would help government-related entities such as Dubai World meet debt obligations. Dubai’s government told creditors of Dubai World on Nov. 30 that they should help in a restructuring of the holding company because the government hasn’t guaranteed the debt.
Royal Bank of Scotland was the largest underwriter of loans to Dubai World, J.P. Morgan Chase said in a Nov. 27 report. HSBC, Europe’s biggest bank, has the “largest absolute exposure” in the United Arab Emirates, according to J.P. Morgan.
Alwaleed said confusion over whether the Dubai government would back Dubai World’s debt “was not helpful at all” and damaged investor confidence in the region.
According to a Bloomberg report, Saudi Aramco, the world’s largest state-owned oil company, said the Dubai debt crisis won’t affect Saudi Arabia because the nation’s financial and property markets are “strong.”
Dubai is “seriously” trying to solve the problem, Seoul-based S-Oil Corp., of which Aramco owns 35 percent, said in an e-mailed statement on Wednesday, citing Aramco Chief Executive Officer Khalid Al-Falih. The crisis may not spread globally, he said.
Dubai World is seeking to delay payments on less than half its $59 billion of liabilities, easing the potential damage to banks recovering from $1.7 trillion of losses and writedowns from the global crisis.
Aramco will seek to keep crude oil prices stable by curbing price speculation and steady supplies, said Al-Falih, who is visiting South Korea to discuss shipments to Asia’s fourth-largest oil buyer.
“Saudi Aramco recently expanded maximum production capacity to 12 million barrels a day” of which 4 million barrels is surplus, said Al-Falih.
The company, which supplies 30 percent of South Korea’s crude needs, may increase supplies to the country’s refiners including Hyundai Oilbank Co., according to the statement.
Saudi Aramco plans to invest in solar power and recommends that S-Oil, South Korea’s third-largest crude refiner, seek opportunities in alternative energy, Al-Falih said.
Meanwhile, Moody’s Investors Service commented that Asian banks have relatively small exposures to Dubai and Dubai World companies, based on the rating agency’s preliminary survey of the banks it rates in the region.
Therefore, no rating actions have been taken on Asian banks as a result of the requested standstill on selected Dubai World debt payments. Nor does Moody’s expect that there will be any need for negative rating actions on Asian banks at a later date, barring a massive expansion in the scope of restructurings in Dubai.
The Asian banks have billions of US dollars of exposures to UAE entities, but this represents a small percent of bank assets. To date, we have found no Asian bank to have sufficiently high levels of exposure to members of the Dubai World group to warrant any ratings actions.
Even those banks with the larger exposures to Dubai World firms, could fully provision those exposures and still report a profit for the year. In fact, Moody’s believes that the vast majority of Asian banks will not need to set aside more than a couple of weeks’ pretax pre-provision profits to provision possible losses stemming from the requested standstill and restructuring of Dubai World entities. This estimate is based on an assumed 30 percent loss on each bank’s total Dubai World exposures.
These conclusions are based on a large, but preliminary survey. It is possible that some smaller Asian banks may yet reveal relatively larger Dubai World exposures, but Moody’s would be very surprised if any Asian bank had total Dubai World exposures that could not be fully covered by a year’s earnings.
Again assuming losses are in the 30 percent range, no more than 30 percent of earnings would have to go toward provisioning.
