More lenders lowering rates to below prime on the variable, meaning today rates south of 2.25%.  And popular five year fixed rates have additional lenders just over 4%.  Special rates with 30 day quick closing options below 4%. 

Troubles in financial markets as Dubai hits credit snag.  See below. 

                                   ·          TSX +27.61 TSX ended higher on Friday but stock markets were mostly bruised last week in the wake of news that the Dubai government’s investment company Dubai World wants a standstill in payments on its approximately US$60 billion in debt until at least May

                                   ·          DOW -154.48

                                   ·           Dollar -.09c to 94.21cUS    

                                   ·            Oil  -$1.91 to $76.05US per barrel.  

                                   ·           Gold -$12.80 to $1,174.20USD per ounce

Canadian 5 yr bond yields unchanged: remains at  2.36.

Dubai’s reputation as investment magnet takes hit amid ‘standstill’ on $60B debt

The Associated Press

DUBAI, UNITED ARAB EMIRATES — Just a year after the global downturn derailed Dubai’s explosive growth, the city is now so swamped in debt that it’s asking for a six-month reprieve on paying its bills — causing a drop on world markets today and raising questions about Dubai’s reputation as a magnet for international investment.

The fallout came swiftly and was felt globally after Wednesday’s statement that Dubai’s main development engine, Dubai World, would ask creditors for a “standstill” on paying back its $60 billion US debt until at least May.

The company’s real estate arm, Nakheel — whose projects include the palm-shaped island in the Gulf — shoulders the bulk of money due to banks, investment houses and outside development contractors.

In total, the state-backed networks nicknamed Dubai Inc. are $80 billion in the red and the emirate needed a bailout earlier this year from its oil-rich neighbour Abu Dhabi, the capital of the United Arab Emirates.

Markets took the news badly — with the Dubai woes and the continued fall of the U.S. dollar giving investors twin worries. Dubai’s move raised concerns about debt across the Gulf Region. Prices to insure debt from Abu Dhabi, Qatar, Saudi Arabia and Bahrain all rose by double-digit percentages Thursday, according to data from CMA DataVision.

 “Dubai’s standstill announcement … was vague and it remains difficult to discern whether the call for a standstill will be voluntary,” said a statement from the Eurasia Group, a Washington-based research group that assesses political and financial risk for foreign investors interested in Dubai.

“If it is not, Dubai World will be going into default and that will have more serious negative repercussions for Dubai’s sovereign debt, Dubai World and market confidence in the UAE in general,” the statement added.

Dubai became the Gulf’s biggest credit crunch victim a year ago. But its ruler, Sheik Mohammed bin Rashid Al-Maktoum, had continually dismissed concerns over the city-state’s liquidity and claims it overreached during the good times.

When asked about the debt, he confidently assured reporters in a rare meeting two months ago that “we are all right” and “we are not worried,” leaving details of a recovery plan — if such a plan exists — to everyone’s guess.

Then, earlier this month, he told Dubai’s critics to “shut up.”

“He needs to produce a recovery plan that will be respected by those who want to do business with Dubai,” said Simon Henderson, a Gulf and energy specialist at the Washington Institute for Near East Policy. “If he does not do it right, Dubai will be a sad place.”

After months of denial that the economic downturn even touched the glitzy city-state, the Dubai government earlier this year showed signs of trying to deal with the financial fallout that has halted dozens of projects and touched off an exodus of expatriate workers.

In February, it raised $10 billion in a hastily arranged bond sale to the United Arab Emirates central bank, which is based in Abu Dhabi. The deal — seen by many as Abu Dhabi’s bailout of Dubai — was part of a $20-billion bond program to help Dubai meet its debt obligations.

On Wednesday, the Dubai Finance Department announced the emirate raised another $5 billion by selling bonds — all taken by two banks controlled by Abu Dhabi.

Abu Dhabi’s ruling Al Nahyan family has been more conservative with its spending, investing oil profits into infrastructure, culture and state institutions. During Dubai’s real estate bonanza, the Nahyans saw their flashy neighbour race ahead with development plans and tourism plans that had plenty of hype but few details on how they would be pulled off.

Some did materialize. The more than 800-metre Burj Dubai is scheduled to open in January as the world’s tallest building. But many other projects, including a tower even taller than the Burj Dubai and satellite cities in the desert, are still just blueprints.

The standstill will likely not immediately affect CityCentre, an $8.5-billion casino complex opening next month in Las Vegas that is half-owned by Dubai World. A Dubai World subsidiary and casino operator MGM Mirage agreed with banks in April to fully fund and finish the six-tower, 27-hectare development of plush resorts, condominiums, a retail mall and one casino on the Las Vegas Strip.

However, the standstill’s effect may be felt on the famous Keeneland thoroughbred horse auctions near Lexington, Ky., where Sheik Mohammed is a prominent bidder.

Last week, Sheik Mohammed demoted several prominent members of Dubai’s corporate elite and replaced them with members of the ruling family, including his two sons, one of whom is Mohammed’s designated heir.

Businessmen who fell out of favour were closely associated with Dubai’s phenomenal success. They include the head of Dubai World, Sultan Ahmed bin Sulayem, and Mohammed Alabbar, the chief of Emaar Properties, developer of the Burj Dubai and hundreds of other projects.

“He is trying to shake things up,” said Christopher Davidson, a lecturer on the Gulf at Britain’s Durham University and an author of two books on the UAE.

However, Davidson added, Mohammed’s decision to replace those who helped put Dubai on the world map with his relatives might be “read as an increase in autocracy which does not look good internationally.”

Not everyone is upset at Dubai Inc.’s transformation into a family business, analysts say.

Mohammed’s latest moves may have pleased Abu Dhabi more than the foreign investors, but it is Abu Dhabi that still has the strongest incentives to save Dubai from its financial misery.

“By shifting the power base back to the family things are as they should be as far as Abu Dhabi is concerned,” said Mohammed Shakeel, a Dubai-based analyst for the Economist Intelligence Unit.

After an expensive adventure in doing things the Western way, it’s “going back to basics” for Dubai, Shakeel added.

UAE central bank to bolster Dubai banksmess

By Barbara Surk and Tarek El-Tablawy

DUBAI, UNITED ARAB EMIRATES — The United Arab Emirates’ central bank said Sunday it would offer additional liquidity to banks, signalling a push by the federal government to reassure investors worried about the country’s banking sector and its exposure to Dubai’s crushing debt.

Global equity markets were set to reopen today, and investors are worried about a routing similar to that seen last week after Dubai’s chief engine for growth, Dubai World, announced it wanted more time to pay some of its roughly $60 billion US in debts.

The UAE’s official WAM news agency said the central bank issued a notice to banks saying it would make available “a special additional liquidity facility linked to their current accounts at the central bank.” The statement said the facility can be drawn upon at a rate of 50 basis points — half a per cent — above the three-month Emirates interbank offered rate.

International investors reacted with shock and outrage at Dubai World’s announcement Wednesday that, as part of its restructuring effort, it would ask creditors to delay repayment of its debt and that of its real estate arm, Nakheel, until at least May. Nakheel has a $3.5 billion bond coming due in December.

The company’s roughly $60 billion in debt makes up the brunt of the at least $80 billion Dubai owes as a result of a meteoric decade-long growth boom that saw the tiny city-state transformed into a Middle Eastern Las Vegas, New York and Los Angeles all wrapped into one. Dubai World was a key driver of that growth, with interests ranging from ports to real estate.

In the days since the announcement, Dubai officials have gone to neighbouring Abu Dhabi, the oil-rich home to the federal government for a series of meetings. Some analysts have speculated that the timing of Dubai World’s announcement — on the eve of a three-day Islamic holiday — caught even Abu Dhabi’s rulers by surprise, putting them under pressure to act decisively in a bid to shore up confidence in the country’s banks.

UAE banks are believed to be shouldering a large chunk of Dubai’s debts, and international ratings agencies have either downgraded the ratings of some of the country’s banks — or at least placed them on review for further downgrades — citing exposure to Dubai World’s debt.

The central bank’s statement was also aimed at mitigating any negative fallout on the country as a whole, with concerns that Abu Dhabi would be branded with the same iron of pessimism and skepticism that Dubai will likely endure for years to come.

The UAE’s banking system is “more sound and liquid than a year ago,” the bank said.

Dubai World’s call for more time is seen by many analysts as a classic case of over-extension — a tale of a city-state whose dreams for development propelled it to stardom with its indoor ski-slopes, man-made islands and world’s tallest tower.

But that dream was built on borrowed time and money, and as the global recession hammered Dubai, driving property prices down by 50 per cent in a year, forcing layoffs and project delays and cancellations, the emirate no longer had access to the easy credit on which it had pinned its growth.

It simply couldn’t pay.

At the beginning of the year, it launched a $20-billion bond program, of which $10 billion was snapped up by the UAE’s central bank. The same day Dubai World issued its murky statement about a debt-extension, the emirate’s government said a new $5-billion bond issuance had been bought up by two banks majority owned by Abu Dhabi.

While the Dubai World statement made clear that the bonds were not linked to its debt woes, it was obvious that the emirate had little recourse but to turn to Abu Dhabi, whose more conservative growth was fuelled by the same oil that Dubai lacks.

Dubai’s debt saga is not new.

It’s been obvious for some time that the emirate owes more money than it can repay. But what remained unclear was the overall extent of the debt load and what officials were doing to avert a panic at a time when the world was in the nascent stages of emerging from its worst recession in over six decades.

UAE newspaper Al-Itihad on Sunday quoted an unidentified Dubai World official as saying the conglomerate, over the past few months, “totally rejected the idea of selling some of its good investment and real estate assets at low prices.”

The official said any asset sale needed to be in a “commercially fair manner in order to achieve (Dubai World’s) long-term strategic objectives, away from … economic pressures.”

The Associated Press