Indian banks not worried about exposure to Dubai

While Dubai grapples with a financial crisis, Indian banks like Bank of Baroda and SBI will be forced to take a deeper look into their exposure to Dubai-based entities

Dubai’s relentless pursuit of growth received an unprecedented jolt last week, when its heavily indebted flagship holding company, Dubai World, announced plans to restructure $60 billion worth of loans. Dubai World’s real estate arm Nakheel is in the doldrums, after a 50% drop in real estate prices has forced it to ask for a trading suspension of its Islamic bonds (sukuks). Dubai World has sought a moratorium on its debt obligations for a period of six months.
It also appears now that big brother Abu Dhabi is not in a hurry to come to the rescue of its more illustrious neighbour, and is willing to aid some entities only on a case-to-case basis. That could put some Indian banks with direct or indirect exposure to the ‘investors’ paradise’ in a spot of bother.

Although it is unlikely that this crisis will escalate into a full-blown sovereign default, Indian entities will be wary of taking a hit on their balance sheets. A $5.5-billion syndicated loan to Dubai World has, among others, two leading Indian banks as participants. Bank of Baroda and State Bank of India (SBI) have an exposure to the embattled entity, although it is unlikely for each bank to have a significant exposure, given the high number of participants. Some other Asian banks on the roster include Bank of East Asia, CITIC Ka Wah Bank, Cathay United Bank and United Overseas Bank, among others.

In fact, Bank of Baroda has an exposure of Rs4,000 crore to Dubai, of which Rs900 crore is to Dubai World. However, the first repayment in respect of this advance is due only in 2011. On the other hand, India’s largest lender, SBI, has an exposure to Dubai World to the tune of $50 million (Rs230 crore).

Both the banks have, however, played down concerns regarding repayment. Bank of Baroda’s chairman and managing director MD Mallya has stated that the company would study the implications of restructuring Dubai World’s loan. Although the money involved is not huge enough to raise concerns, the management of these banks will be forced to inspect their balance sheets and take a closer look at the beneficiaries of the advances. Among other banks, Axis Bank, ICICI Bank and Indian Overseas Bank are reported to have exposure to Dubai, albeit in manageable proportions.

Apart from the direct exposure to Dubai World, banks will have to study their indirect exposure through loans to companies and exporters that deal with Dubai-based entities. 




7 years ago

Where the exposure is due to Economic considerations or due to D company blackmail?Also labour from UP/Bihar employed in unskilled section are likely to be thrown out

Sensex up 272 points at 17,198

The Sensex closed at 17,198 as it gained 272 points from the previous day’s close, while the Nifty closed at 5,122, up 89 points, after data showed strong Indian economic expansion in the September quarter. 

During the day, Sun Pharmaceutical jumped 6%. The company had recently received United States Food and Drug Administration’s approval for its generic Strattera capsules, used for treatment of attention deficit hyperactivity disorder. The drug is a therapeutic equivalent of Strattera capsules from Eli Lily.
Maruti Suzuki India rose 2% after total vehicle sales spurted 66.6% to 87,807 units in November 2009 over November 2008. Domestic sales surged 60.1% to 76,359 units, while exports surged 128.6% to 11,448 units in November 2009 over November 2008.
Tata Motors is reportedly planning to produce hybrid versions of its low-cost car Nano to join the environment-friendly bandwagon. The stock surged 6%.
Mahindra & Mahindra (M&M) signed an agreement with BAE Systems, a global defence systems manufacturer, to create a land systems focused joint venture defence company that will be based in India. M&M will hold 74% in the venture and BAE Systems will hold the remaining 26%, the maximum foreign direct investment allowed under the existing defence sector FDI norms. The two companies will invest a total of $21.25 million over a three-year period. The stock was up 5%.
Reliance Industries (RIL) advanced 3% on reports that the company has become the largest natural gas producer in the country with its over 50 million metric standard cubic meter per day (mmscmd) output, surpassing state-run Oil and Natural Gas Corporation’s output.
State Bank of India gained 2% on reports that the bank has invited bids for sale of 1% stake in the National Stock Exchange of India (NSE) as well as 5.91% stake in the Multi Commodity Exchange (MCX).
Mercator Lines rose 4% after the company took delivery of a 1993 built M R tanker of 42,235 dead weight tonnage.
Jubilant Organosys rose 3% after the company extended its four-year old drug discovery collaboration agreement with Eli Lilly and Co by five years.
Peninsula Land shot up 5% after the company received a sum of Rs160 crore from Alok Realtors from the sale of 6.41 lakh square feet at Peninsula Business Park in Mumbai.
After the trading hours on Monday, the government announced that India’s fiscal deficit during the April to October 2009 period was at Rs2.45 lakh crore ($52.70 billion), or 61% of the full-year target. Tax receipts were Rs2.14 lakh crore and total expenditure was Rs5.37 lakh crore for the first seven months of the 2009-2010 fiscal.
During the day, the government announced that exports fell 6.6% to $13.19 billion in October 2009 over October 2008, while imports dropped 15% from a year earlier to $22 billion. The trade deficit shrunk to $8.80 billion in October 2009 from $11.74 billion a year earlier. Exports for April-October 2009, the first seven months of the 2009-10 fiscal year, were down 26% at $91.05 billion from the same period in the previous year.
According to C Rangarajan, chairman of the prime minister’s Economic Advisory Council, the robust growth of the economy in July-September indicated it could expand at around 7% in 2009-10. The latest numbers do indicate that industry and services are growing very strongly offsetting the impact of the decline in agricultural production, Mr Rangarajan said.
Meanwhile, finance minister Pranab Mukherjee told Parliament that the current trend in inflation in India was a result of a shortage of food items and not due to a demand-push factor. The food articles index rose an annual 15.6% as of 14 November 2009, up from the previous week’s 14.6% rise. Weak monsoon and floods in parts of the country have hurt farm output and pushed up food prices. He said that the government is keeping a close watch on futures trading in commodities.
The finance minister said buoyancy in the government’s revenue seen earlier may not continue till 2011-2012. Mr Mukherjee also said that the government will not sell over 10% in listed State-run firms at this stage and will time its stake sale to get maximum value.  
The HSBC Markit Purchasing Managers’ Index, based on a survey of 500 companies, fell to 53 in November 2009 from 54.5 in October 2009. According to the survey, India’s manufacturing activity expanded for the eighth straight month in November 2009 but was at its weakest pace since March 2009 due to a slowdown in growth of output, new business and employment.
During the day, Asia’s key benchmark indices in Hong Kong, Singapore, South Korea and Taiwan were up by between 0.88%-0.98%, while indices in China and Japan were up 1% and 2% respectively.
The purchasing managers’ index released by HSBC Holdings Plc rose to a seasonally adjusted 55.7 in November 2009 from 55.4 in October 2009 whereas the Chinese government’s purchasing managers’ index was unchanged at a seasonally adjusted 55.2.
The Bank of Japan decided to take additional easing steps at a special policy meeting in order to sustain the country’s fragile economic recovery in light of deflationary pressures and a soaring currency.
The Japanese central bank kept its overnight call rate target unchanged at 0.1%, but also set up a new 10 trillion yen ($120 billion) lending facility, which will accept as collateral Japanese government bonds, corporate bonds, commercial paper, and deeds on loans. The bank pledged to cooperate with the government to do all it can to pull Japan out of deflation, which the bank has said it expects to last for three fiscal years.
Meanwhile, the Reserve Bank of Australia raised its cash rate target by one quarter of a percentage point to 3.75%, further unwinding emergency policy settings no longer appropriate for the country's recovering economy.
On Monday, 30 November 2009, the Dow Jones Industrial Average gained 35 points while the S&P 500 and Nasdaq Composite gained four points and six points respectively.
As per US economic data, the Institute for Supply Management (Chicago) reported that its gauge of regional business activity rose to 56.1 in November 2009 from 54.2 in October 2009.
However in premarket trading, the Dow was trading 66 points higher. 


Viability of SEBI’s proposed SME platform remains a concern

Market regulator Securities and Exchange Board of India (SEBI) has made a lot of sound and dance about its proposed exchange platform for small and medium enterprises (SMEs). It has announced a list of norms for the new platform, which leave several questions unanswered. For instance, will the new platform be successful at attracting SMEs? Would it create a thriving public market in SMEs allowing them to raise capital? And why have previous experiments such as IndoNext (on the BSE) failed?

Previous attempts at creating a similar platform were fraught with issues relating to liquidity and inadequate participation due to lack of awareness. Jagannatham Thunuguntla, equity head, SMC Capitals says, “The main challenge with creating an SME platform anywhere in the world is that of ‘illiquidity of the trading scrips’ and lack of sufficient trading volumes of the stocks trading on these platforms. Hence, once the trading volumes of these stocks dry up, these stocks gradually lose interest from investor circles.”

One of SEBI’s norms specifies that merchant bankers to the issue will bear responsibility for market making for a minimum period of three years. It remains to be seen whether merchant bankers will be willing to stay around for three years. Mr Thunuguntla adds, “This time SEBI has introduced the concept of ‘mandatory market making’ for three years by the merchant bankers of all the SME IPOs that get listed on these platforms. One may need to wait and see how this market making works out in ensuring good trading volumes. Once market participants get familiar about these new developments, gradually action may pick up on these platforms.”

Madhabi Puri Buch, managing director and chief executive of ICICI Securities explains, “While the responsibility on the merchant bankers will be considerable, this will have the effect of ensuring that only those issues in which the merchant bankers have full confidence are brought to the public on this platform. The guideline envisages that the merchant bankers can tie up with a registered private equity entity in order to facilitate market making and this will assist them in ensuring that risks are better managed.”

SEBI was previously looking at creating a separate SME exchange altogether, but instead settled on a separate SME platform in the existing stock exchanges. Mr Thunuguntla feels that this is a good idea, as the existing stock exchanges already have tried-and-tested technology platforms and strong clearing mechanisms. If another SME exchange is to be created, then creating technology and clearing mechanisms all over again may prove to be challenging.
– Sanket Dhanorkar




7 years ago

mr. sanket interesting report and comments by two persons.We would have been educated if you had done research and reported how many small and medium exchanges function in usa, how easy it is to raise risk capital in usa where 56% household savings are in capital market as compared to 2% in india.the amount on money lost in 2007 scam ipo like reliance power and other reality issues is much more than all the vanishing companies that raised capital when access was easy.our regulators are having clay feet and are worried all the time about deregulation and we investors are forced to lose by measly FD returns.
Can we have more alternate avenues to invest as they have in developed countires. can we have more articles in invetor education so we become mature and able to decide about risk taking ourselves rater than reading all the doctored articles.
Kishore ghiya mob 09825217857

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