Impact of Dubai debt crisis limited to certain firms: analysts
By Rachel Kelly, Channel NewsAsia | Posted: 30 November 2009 2229 hrs

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SINGAPORE: Singapore shares fell 1.09 per cent on Monday, in reaction to news that a Dubai government investment company had asked for more time to repay its debt of nearly US$60 billion.

But the fall is not as bad as initial expectations of a 2 to 3 per cent decline. In the meantime, the Monetary Authority of Singapore (MAS) said it does not expect developments in Dubai to affect Singapore's financial stability.

It said Singapore's banking sector's gross exposure to the United Arab Emirates (UAE), of which Dubai is one of seven emirates, is well below 1 per cent of total banking assets.

Apart from a brief rally early in the session on Monday, the benchmark Straits Times Index traded mostly in a tight range and closed at 2,732.12. Market players said the local market was able to limit the slide, thanks to broad rallies across Asia.

Wong Sui Jau, general manager, Fundsupermart.com, said: "There was a fall, but it wasn't really the kind of huge drop or crash that the other markets on Friday went through.

"I think a lot of Asian markets, as well as Singapore investors, are probably realising that the impact will not be as big as what they feared because ultimately, Dubai is far from Singapore. The total debt exposure, even for Dubai World, is US$59 billion – small compared to the debt that caused the financial crisis last year."

Overall, some analysts said the impact of the Dubai debt crisis will be limited to companies with exposure to the emirate, particularly the property sector. Others said Singapore's Islamic finance industry may well benefit.

Bernard Lee, deputy director, Sim Kee Boon Institute for Financial Economics, Singapore Management University, said: "Dubai, as an international banking sector, has certainly suffered an amount of damage to its reputation and the fact that Abu Dhabi is bailing, but not unconditionally backing it (is contributing to the damage).

"On a comparative basis, it certainly puts Singapore in a very positive light at this point, in the sense that the government here has a huge amount of reserves and also a very aggressive strategy to Islamic banking."

DBS has disclosed that its total exposure to Dubai is about S$1.8 billion. The bank said it believes the situation is manageable as a substantial part of this is in Dubai-owned companies operating in Asia which are sound.

As of Monday, the only credit that is captured under the standstill notice is a S$558 million bilateral loan to Dubai World Finance, which represents 0.2 per cent of DBS' total balance sheet.

The bank has no exposure to Nakheel, the Dubai World property unit which is building the iconic Palm Jumeirah artificial island. DBS said its exposure to the entire Middle-East region accounts for around 2 per cent of its balance sheet.

OCBC, for its part, said it has no exposure to Dubai World and Nakheel, and its exposure to the Dubai government, government-linked corporations and other institutions is not material.

UOB said its exposure is insignificant.


- CNA/so