Dubai shock hammers Asian banks, builders

 

TOKYO: Banks and builders bore the brunt of selling pressure across Asia yesterday as investors fretted that exposure to Dubai could further squeeze profits already hit by the global economic downturn.

Shares of leading banks including HSBC Holdings and Standard Chartered tumbled 7 to 8 per cent, and property developers such as Australia's Leighton Holdings, and Japan's Obayashi Corp were dumped on fears of losses from some of Dubai's extravagant construction projects.

"Dubai is a real shock to the market," said Richard Morris, investment manager at Constellation Capital Management in Sydney.

"Everybody's been playing the risk trade and this is a reminder of what went on during the global financial crisis.This will cause a shifting back to a more defensive stance."

Dubai has spooked financial markets since Wednesday when it said two flagship firms planned to delay repaying billions of dollars in debt. State-backed Dubai World has US$59 billion (US$1 = RM3.38) of liabilities - a big chunk of the emirate's total debt of US$80 billion.

Standard & Poor's (S&P) and Moody's Investors Service have sharply cut their ratings on several government-related entities, with Moody's slashing some units to junk status and S&P saying the restructuring could be considered a default.

"Within banking specifically, the biggest exposure appears to be with Standard Chartered and, secondly, with HSBC, followed by DBS," said Daniel Tabbush, Asia banks analyst at CLSA in Bangkok.

Few of Asia's big banks would comment on their exposure, with most saying they did not talk publicly about loans to specific clients.

Standard Chartered said in a statement it was aware of its disclosure obligations and would make a statement in the event it had anything material to disclose.

Goldman Sachs said its initial worst-case loss estimates were US$611 million for HSBC and US$177 million for Standard Chartered.

An official for HSBC declined to comment. The London-based bank may have assets of around US$9.7 billion in Dubai, Singapore's DBS has estimated. No one at DBS was available for comment on the bank's exposure, and its shares were untraded due to a market holiday.

HSBC, and Japan's Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group, were among the bookrunners on an outstanding US$5.5 billion syndicated loan to Dubai World in June 2008, according to Thomson Reuters LPC data.

A unit of Dubai World, Dubai Drydocks, signed a US$2.2 billion loan in October 2008, involving 15 lenders, according to Thomson Reuters LPC. Bookrunners on that loan included HSBC and Standard Chartered.

Sumitomo Mitsui, Japan's third-ranked bank by assets, and Australia's Westpac Banking Corp were among the banks that took part in the financing.

Officials for Japan's top three banks, Mitsubishi UFJ, Sumitomo Mitsui and Mizuho Financial Group, said they do not comment on individual deals.

Shares in Mitsubishi UFJ fell more than 2 per cent in Tokyo, and Sumitomo Mitsui and Mizuho both lost nearly 4 per cent.

Westpac said it had little financial exposure to Dubai World and expected no material loss. Other Australian banks, Macquarie Group, Australia and New Zealand Banking Corp and National Australia Bank Ltd, said they had no material exposure to Dubai.

Taiwan's fourth-ranked Mega Financial said it had exposure to Dubai World loans and was trying to find out how much.

"We are very concerned about the situation," Grace Lin, an executive vice president, told Reuters by phone. "We heard some other Taiwan banks also have exposure."

In South Korea, the Financial Supervisory Service has said the country's financial institutions' exposure to Dubai was just US$88 million, but shares in KB Financial, Shinhan Financial Group and Woori Finance Holdings all fell by around 4 per cent.

South Korea's construction subindex shed nearly 7 per cent, led lower by Samsung C&T and Hyundai Engineering & Construction. Samsung C&T said it was working on a project from Dubai's Nakheel worth US$350 million.

Australian builder Leighton, majority owned by Germany's Hochtief, said it was owed money on a few separate Dubai building projects.

"We are confident we will recover the moneys owing, but the timing is uncertain," a spokesman told Reuters. He did not give details. Leighton shares lost 4 per cent.

In India, shares in DLF, the country's biggest listed real estate firm, fell as much as 8 per cent. - Reuters