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February 2010

News Letter - 16th February 2010

So far this year, the Dubai Financial Market (DFM) has depreciated by 11.8%, primarily driven by investors’ lack of confidence in the true situation surrounding Dubai World’s debt. The market is expected to continue to react negatively until there is some clarity and investors are reassured as to the true extent of the actual debt. The levels of bad debt that banks in the UAE are going to have to write off are expected to increase from their 2009 levels. In an attempt to steady the DFM, Dubai World has just announced it intends to officially ask creditors for a moratorium on $22bn of its debt, (which represents only a part of the ‘black hole’ of debt in which the company finds itself). The impact of this announcement on the market it yet to be seen; the entire world is already very much aware of Dubai’s huge debt problem – officially or unofficially and so it remains to be seen what impact this latest announcement will have on the market. There is a suggestion that Dubai World will offer only 60 cents on the dollar during the re-negotiation of the £22bn which can only bode badly for the DFM…

With the price of crude remaining very much static at around $72 per barrel, more VLCC’s have been either laid up and / or  used for storage. The market will now be moving into a less demanding period since the northern hemisphere’s winter requirement of oil has already been delivered. If the likes of China and India do not increase their uptake of crude, we will possibly see a further decrease in demand which will further depress tanker charter rates and possibly a decrease in the price of oil per barrel.

Abu Dhabi has invited developers or most likely a consortium of developers to bid for the construction of Shuweihat S3 power utility where the private consortium will own 40% of the development. It is said the S3 plant will add 1,600MW capacity to Abu Dhabi. In the meantime it has just been announced that the 2010 Power Gen Middle East Exhibition, a three day event - is to be held in Doha in October. This is the first time this decade old event will have been held in Doha. In the past it was held in either Abu Dhabi or Bahrain.

A recent survey of businesses in the UAE indicates that business class air travel is set to increase in 2010 after two very lean years. Since businesses in Dubai are still shedding labour, one would not expect such an increase to be coming from Dubai businesses but rather from the other Emirates of the UAE which are not suffering from the debt ‘’black hole’ of Dubai! The UAE’s low budget airline, Air Arabia, has announced a fall of 15.2% in net profit in Q4 2009. The same period in 2008 generated a return of $37m. The airline indicated full year profit declined 11.2% while turnover declined 4.5%. Although the figures are all ‘down’ they are better than earlier expectations. Air Arabia now has competition in the budget flight sector from a new ‘’upstart’’ airline flydubai!