UAE markets seen 'limit down' on Monday open

DUBAI // UAE markets will face intense selling pressure when they reopen on Monday in the first post-holiday trading after Dubai shocked global markets last week by seeking a debt standstill for two flagship firms. Banks, property and construction firms will stand in the line of fire as investors weigh up the damage caused by the surprise move to restructure government-controlled Dubai World and its property arm Nakheel.

"We are probably going to see limit down, unless some sort of clarification of a plan or anything that would elevate investor concerns comes out in the morning," said Haissam Al Arabi, head of hedge fund Gulfmena Alternative Investments. "Dubai will take Abu Dhabi down with it." Equity markets came under severe pressure on Thursday after news that Dubai World, the government investment company burdened by $59 billion in liabilities, sought to delay repayment of some debt.

Regional investors are eager for any sort of guidance from the central bank or government ahead of the market open as rumours about the scope and origin of the crisis run rampant. Arabtec, the largest construction firm in the Middle East, is likely to suffer on doubts about contract payments from Nakheel. The two projects are worth Dh1.4 billion, according to a Cheuvreux report. With storm clouds over the real estate market, Emaar and Union Properties will suffer as well. Dubai's woes will likely drag regional listed firms such as Abu Dhabi-based Aldar and Sorouh lower as well.

Saud Masud, UBS' head of research and senior real estate analyst for the Middle East and North Africa, said the crisis will weigh heavily on real estate prices as well. "The news plays on investor psyche and house prices may slide a further 20-30 per cent earlier than our existing view of second half of 2011," he said. "There may likely be further job cuts as a result of any potential restructuring, and that could directly impact population outflows and result in housing oversupply."

Banks will face pressure as investors measure damage to earnings or a threat to the smoothe-functioning system. "We have to see how ordinary bank depositors in Dubai react tomorrow given the uncertainty and knowing that the Central Bank is vigilant and capable to support the banking system," John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh. Some investors, however, will bet on a bailout and may use any selling to position themselves accordingly.

"Things won't be bad for long. There will definitely be some sort of bailout or some kind of intervention," says Gulfmena's Al Arabi. But in the absence of concrete policy statements, doubt is likely to prevail. Investors are keen to discover whether the "standstill" will be voluntary or involuntary. If creditors are not given the choice the restructuring will be viewed as a default. "There is a difference between restructuring and default, they are both negative but one is just really negative. They can just increase the coupon rate or something to make the restructuring more appealing," said London-based Amr Aboushaban, senior equity sales at Merrill Lynch.

Mr Aboushaban said rival bourses in Kuwait, Qatar and Egypt may not be so negative when they open on December 1st. "I think the GCC will be affected, but for people to be turned off by MENA as a whole is not justified." *Reuters