DUBAI // On a day when just about every UAE stock recorded gains, no sector seemed to profit more than regional banks. Dubai Islamic Bank, Emirates NBD and Abu Dhabi Commercial Bank (ADCB) each climbed sharply on the news of Dubai World's debt restructuring proposal. Smaller banks such as Union National Bank and Ajman Bank also rose more than 5 per cent.
The Dubai Government said yesterday it would inject US$9.5 billion into Dubai World and its property developer Nakheel. And Nakheel said it would repay its trade creditors, ending months of uncertainty in the market about whether creditors will have to take a "haircut", or reduction, on their receivables. "The most surprising thing was that there are no haircuts and the loans will be restructured on commercial rates.
"This has pleasantly surprised the market," said Mohammed Ali Yasin, the general manager at Shuaa Securities. Banking stocks have taken a hammering since Dubai World announced in November it is seeking to restructure $26bn worth of loans with more than 90 local, regional and international lenders. Moody's Investors Service estimated last month that rated UAE banks have an overall exposure to Dubai World of Dh55bn.
It is not clear how those obligations are spread around. ADCB, the third-largest bank in Abu Dhabi, is the only local lender to quantify its exposure: Dh9bn in outstanding loans to Dubai World. About half of the total is supported by collateral and income streams from infrastructure and other projects, Alaa Eraiqat, the chief executive of ADCB, said this year. Along with Emirates NBD, the country's largest lender by assets, ADCB sits on the lenders' committee negotiating terms of restructuring with Dubai World.
While Dubai World officials made it clear that they did not favour local banks over their international peers, regional investors were clearly pleased with the terms of the suggested deal. Not only do sukuk holders get paid as the instruments mature, unlike the trade creditors who receive a combination of cash and securities, they should also benefit as the effects of the deal seep into the broader economy.
"This is the first time investors can quantify risks on equities. "I think with some more clarity on how the deal is being structured, markets will move forward," said Ian Munro, the head of equities research at the investment bank Mac Capital. @Email:email@example.com