Abu Dhabi hotel installs gold vending machine

ABU DHABI — There's no mistaking what's in this vending machine. The well-heeled in the Gulf can now grab "gold to go" from a hotel lobby in the United Arab Emirates, when the need for a quick ingot strikes.

On Thursday, a day after its inauguration, the shiny machine attracted spectators of many different nationalities who gathered to watch whenever an enthusiast was struck with the urge to splurge on a bar of the precious metal.

Abu Dhabi's Emirates Palace Hotel became the first place outside Germany to install "gold to go, the world's first gold vending machine," said a statement from Ex Oriente Lux AG, the German company behind the vending machine.

"In addition to one-gram, five-gram and 10-gram bars of gold, the machine also dispenses gold coins," it added.

Gold rates are constantly updated inside the shiny machine -- itself gold-plated -- in the hotel's lobby, courtesy of a built-in computer connected to a dealer which sells gold online.

"This eliminates the risk premiums usually associated with precious metal trading," the German company said.

Hotel general manager Hans Olbertz said they wanted the hotel to be the first in the world to offer guests what he called "this golden service."

The Emirates Palace is often used by visiting foreign dignitaries, and its top floor is reserved for the rulers of the UAE federation's seven emirates, each of whom has his own suite.
Source (AFP)

Dubai May Trigger Major Sovereign Default

Alex Messenger
Dubai’s announcement on Wednesday that it would be delaying by “at least” six months the maturity date of $59 billion in bonds issued by the city-state’s largest state-owned company, Dubai World, has sent global shares tumbling. The market reaction to Dubai’s massive debt default is partly explained by the exposure of European and Asian banks to DP World and its tourism subsidiary, Nakheel.

The real reason for the falls, however, is that Dubai’s apparent insolvency confirms that default by hyper-indebted government borrowers is now a real risk right across the globe, especially in the Middle East and Eastern Europe. Such a default would not only mean an immediate worsening of the already brutal post-crash conditions suffered by millions of workers in defaulting countries, but would usher in a second, and probably worse, phase in the global financial crisis.

A note published by Bank of America strategists warned of the possibility of a major sovereign default. “One cannot rule out—as a tail risk—a case where this would escalate into a major sovereign default problem, which would then resonate across global emerging markets in the same way that Argentina did in the early 2000s or Russia in the late 1990s,” the note said.

An editorial in today’s Financial Times noted that while markets were not expected to return to the panic of September 2008, because the financial sector had state backstops, “fearful investors have started to worry about how safe sovereign debt is,” citing Ireland and Greece as two examples.

The Dubai meltdown represents only a small sum in terms of total global indebtedness. Nevertheless it indicates that despite talk of global economic recovery, the world remains on a knife-edge. Attempts at reassurance by British prime minister Gordon Brown indicate that financial and government elites are already fearful. Brown this morning acknowledged the risk that Dubai posed to the global economy but, with careful understatement, told reporters “I think we will find this is not on the scale of the previous problems we have dealt with.”

Market falls on news of the Dubai crisis were sharpest in Japan, where a number of banks (including Mitsubishi UFJ and Semitoro Mitsui) are directly or indirectly exposed. Japanese shares plummeted 3.2 percent yesterday—the market’s largest one day decline in 8 months. A 2.9 percent fall in Australia the same day reflected the fact that a Dubai World subsidiary, stevedoring company DP World, carries one third of Australia’s sea cargo. In New York, the share index opened 2 percent down and only partially recovered those losses. Forty-four billion British pounds has been wiped off the London market, the largest single day loss since March. Shares in UK bank HSBC fell 7 percent. HSBC is reported to have lent Dubai $17 billion. Other UK banks with a Dubai exposure are Standard Chartered, Citigroup UK, Lloyds and Royal Bank of Scotland, an institution now majority-owned by the UK government, which has received more bailout money ($67 billion) than any other bank in the world.

Dubai World accounts for three quarters of the $80 billion borrowed by Dubai’s state-owned companies to fuel the emirate’s property boom. That boom—which came to an end when property values halved in a period of weeks from October 2008—was an expression of the global elite’s fantasy of endless wealth, with Dubai’s ruling family creating a desert playground for the global rich. Its most notable features were the world’s tallest building, a giant indoor ski slope and a series of vast man-made islands in the shape of palm trees and stars. Dubai World, which manages billions in construction projects, also used its foreign borrowings to diversify into global transport, especially ports and shipping. DP World is the largest port operator in the Middle East.

It is testimony to the anarchy and irrationality of the global financial system that although the scale of the Dubai crisis has been apparent for months, the government’s default announcement still caught global markets unawares. Banks had apparently assumed the existence of an implicit government guarantee of DP World’s debt, if not by the Dubai government, then by Dubai’s sister emirate, oil-rich Abu Dhabi. But there was no guarantee—Dubai World is a limited liability company owned by the Dubai government. The expectation that Abu Dhabi would rescue foreign investors was just idle hope.

Along with worldwide share market falls, the immediate effect of the Dubai default has been a surge in the insurance costs for national borrowings, especially by poorer countries. That cost is represented in the price of credit default swaps (CDS) on government bond issues. Greek CDS costs in particular have skyrocketed, raising fears that Greece, with public debt levels at a staggering 130 percent of GDP, will follow Dubai within weeks. CDS costs for Hungary have also soared since Wednesday, and there have been CDS price increases of about 11 percent for Malaysia, South Korea and Qatar.

These developments are by no means unforseen. Rather, the Dubai default is a lit match for ready-to-burn tinder, namely global sovereign debt levels. The key response of capitalist institutions to the global financial crisis has been to transform the toxic debts and unsustainable borrowings of private institutions into public debt via bail outs, guarantees and other stop-gap mechanisms. According to new estimates by Moody’s, the credit rating agency, the total stock of sovereign debt worldwide will have risen by nearly 50 percent between 2007 and 2010 to $15.3 trillion.

This ballooning of sovereign debt has been so fast and so immense that there is little chance of debtor governments, mired in unemployment and low growth, repaying either in the short or long term. As borrowing costs increase because of the perception of increased default risk (also called ‘long tail’ risk), the situation for indebted countries becomes worse. Global funds available for such borrowings are also drying up. While Greece, Hungary, Latvia, Estonia and Turkey are at the top of the global watchlist, default is also an eventual likelihood for the United States, which has public debts of $12 trillion. The key difference between the United States and smaller states, in this regard, is that the US is currently deemed by its bondholders, including the Chinese government, as ‘too big to fail’.

The Dubai default also pierces claims that allegedly well-managed and well-regulated national portions of the world economy can escape the effects and aftershocks of the financial crisis. Government and the corporate press have claimed that Australia, for example, is immune. But it is now likely that DP World’s Australian ports—a substantial piece of that country’s infrastructure, currently worth $1.5 billion—will have to be sold in the near future. Early reports indicate that there is unlikely to be strong interest and there may be no buyers. Few local companies have funds of that scale to invest in what is now, in the context of an uncertain future for global trade, a very risky asset.

Dubai Crisis Threatens Airbus and Boeing

Image via Wikipedia

http://www.businessweek.com
As if Airbus and Boeing didn’t have enough to worry about already, the looming debt crisis in Dubai has cast a shadow over a backlog of aircraft orders, worth more than $60 billion, from Dubai, Inc.

The biggest – but by no means the only – example is Emirates, Dubai’s government-controlled carrier. It has more than $30 billion worth of planes on order from Airbus, including 53 of the double-decker A380, for which Emirates is by far the largest customer. Emirates also has placed 70 orders for Airbus’s forthcoming A350 widebody. And Airbus has outstanding orders from state-controlled leasing outfit DAE Capital totaling about $12.6 billion.

No surprise, then, that shares in Airbus parent European Aeronautics Defence & Space Co. fell more than 3% on Nov. 26 when the Dubai government asked to postpone debt repayments.

Boeing is considerably less-exposed than Airbus to potential turmoil in Dubai, but it still has plenty at stake. Emirates has about $4 billion worth of Boeing 777s on order, while DAE Capital and low-cost carrier Flydubai have a combined $16 billion on order from Boeing. As U.S. markets reopened on Nov. 27 after Thanksgiving, Boeing shares were down 1.2%

Emirates, which in less than a decade has grown from obscurity into one of the world’s biggest airlines, has long said that it receives no government subsidies. Even so, the debt crisis could wreak havoc with its future. Travel to Dubai had already started to slump as the economy weakened earlier this year – although Emirates is cushioned somewhat because about 60% of passengers coming through its Dubai hub are on flights connecting elsewhere.

A scarier prospect for Emirates is that Dubai’s oil-rich neighbor, Abu Dhabi, might demand control of the airline as part of a deal to bail out its debt-strapped neighbor. Abu Dhabi’s state airline, Etihad, has ambitions to become a global player and turn the Abu Dhabi airport into a major hub.

If that happens, it’s unlikely Abu Dhabi would take delivery of all Emirates’ order backlog, in addition to the 100 aircraft it has ordered. Longterm market analyses by Airbus and Boeing predict that air travel in the Middle East will grow an average 6% to 7% annually over the next two decades, too little to absorb both carriers’ order books. And those estimates were made before the Dubai debt crisis.

The outlook for DAE Capital and Flydubai is worrisome, too. Both now have small fleets and have been counting on robust revenue growth to pay for new aircraft purchases. It could add up to a very bumpy ride for both Airbus and Boeing.

If Dubai is the sovereign debt equivalent of Northern Rock, then Greece might be its Bear Stearns and Japan its Lehman Brothers

Image by Getty Images via Daylife

Jeremy Warner
telegraph.co.uk
As one financial crisis recedes, another may be beginning. In Dubai this week, we've had a foretaste of what may be to come as governments around the globe seek to grapple with the explosive growth of fiscal deficits and public debt.

Like everyone else, my regard for the miracle of Dubai's fast-evolving skyline has always been tempered with a high degree of scepticism. As a monument to the vanity and hubris of Sheikh Mohammed bin Rashid al-Maktoum, Dubai has long looked like an accident waiting to happen. Such has been the pace of development that nobody could have been surprised by the debt default now threatened. Only the assumed support of Dubai's richer neighbour Abu Dhabi, which is now far from certain, has prevented it happening sooner.

Yet the important question for markets today is not whether Dubai and Sheikh Mohammed can survive the sandstorm; in fact, that is almost irrelevant. Dubai's debts of $80 billion (£48 billion) are a tiresome and unwelcome irritant which will cause further write-downs among western banks, but in the scale of things not of great significance: Britain is planning to raise more than three times that amount in the debt markets in this financial year alone.

Rather, the issue is whether this folie de grandeur of a desert kingdom is just an isolated, and therefore containable, incident, or a more worrying outrider for a wider sovereign debt crisis which might eventually engulf major, advanced economies. Everyone thought the financial implosion of the last two years was largely behind us – yet Dubai has reminded us that if nations start defaulting, then it may be about to enter a new and even more frightening phase.

Think of Dubai not so much as the hors d'oeuvre as the pre-dinner canapé, with the starter reserved for larger economies with distressed fiscal positions, such as Greece and Ireland, moving for the main course on to Japan and possibly even Britain and the US.

Already, there are rumblings. The cost of insuring sovereign debt against default has risen across the board, and for countries thought particularly at risk, bond yields are on a firm upward march.

Across the developed world, public debt is set on an explosive course. According to new estimates by Moody's, the credit ratings agency, the total stock of sovereign debt worldwide will have risen by more than 50 per cent between the start of the financial crisis in 2007 and the end of next year, to $15.3 trillion.

But this is just the beginning. On current projections, that total is set to rise by at least a further 50 per cent, before finally peaking in four to five years' time, and then only if governments have by then taken remedial action.

These are uncharted waters, quite without precedent in peacetime. In seeking to address the financial and economic crisis of the past few years, countries have come close to bankrupting themselves. It is as if, in treating the patient, a physician has infected himself with the same deadly disease.

Perhaps oddly, financing these fast-growing deficits has not so far been a problem, at least for the major advanced economies. Risk-averse investors have spurred high demand for sovereign debt, in the possibly misguided belief that there can be no haven safer than assets guaranteed by taxpayers and the ability of their governments to print money.

More perversely still, the crisis in Dubai has caused a renewed flight to the perceived security of G7 government debt. Money is being withdrawn from the periphery and reinvested in US Treasuries, German bunds, and even British gilts.

But if the banking crisis is anything to go by, that's not where the story ends. There, too, the implosion began with smaller, obviously flawed bit-players, who had self-evidently grown too rapidly and overstretched themselves.

Markets dashed to withdraw funding from Northern Rock, but in transferring the money to the likes of the Royal Bank of Scotland found that they had invested only in something even more unstable. The Rock, it turned out, was just an outlier in a systemically unsafe sector.

If Dubai is the sovereign debt equivalent of Northern Rock, then Greece might be its Bear Stearns and Japan its Lehman Brothers. But why stop there? For Citigroup, think the US, and for RBS and HBOS, think Britain. Only there would be no one to bail out their creditors if America or Britain showed signs of defaulting.