DUBAI FINANCIAL CRISISImpact on Indian economy

Submitted By:Satya Kam Jawal & Abhishek Saxena BBA Vth Sem(Finance)

PIMG.

DEBT Trap
 To become world flashy city state owned companies accumulated debt of over $80 billion (126% of Dubais GDP).  Out of this, Dubai World the state owned company have $60 billion of debt(short term paper) from Worlds Top Banks .  So, any sort of default is sure to send tremor to the fragile financial market.  Crisis began when investor of Nakheel ,a real estate developer flagship of Dubai World considering deferring the payment of Islamic bond sukuk that is to come up for payment on 14th December. This irritated the investors and they pressed the panic button. The crisis in Dubai triggered sell off across the world.  Dubai surprised the financial markets when it asked creditors of Dubai World to agree to a six-month standstill on debt payments for debt totaling > $80 Billion.

Reason why they are not able to pay

During the recession people from USA and other country whom invest their money at Dubai want it back to fill their losses and they start selling their property Result of this price are fall down to 50%in last year and this year reduced 30% more Amount was expected is US $17 Trillion

What is Dubai World

Dubai World is Government Company having central role in Dubai economy during the constriction boom they borrowed the sum of US $ 60 billion for investing in real state development .This amount is the big part of UAE Loan which is Us $80 Billion

BURJ KHALIFA

PALM JUMEREIAH

WHY DUBAI WORLD CRISES ?

1. Out of control spending For eg:- Dubai's famous hotel, the Palazzo Versace hotel -have refrigerated beaches . 2. Lack of Future Planning Dubai is a hot arid desert coastal town distant to vital strategic assets. For instance, Dubai has to ship fresh water . Investment was invested mainly in hotels and big resorts and not in education. Have no plan for any oil shortages(will be a ghost town without proper oil plan). 3. Poor Management Eg: The World Island hotel has man made islands where ships and trucks of sands have to be move to build these islands. At the moment, these islands are sinking. Billions of dollars was wasted. Also, hundreds of apartments are left empty because of too much construction of apartments close together and too fast. This is a result of poor management.

INDIA & DUBAI

Dubai employs around 10 lakh Indian( mainly south indian keralites) .The remittance from the Dubai region is in the range of $8.7 billion (20% of the state GDP)in 2008. India export to UAE stood a $23.92 billion in 2009 . Dubai world crisis will affect:- Real state, Banking and Constructions business. Company having exposure are:1. Nagarjuna Constructions have Rs 1400 Crore of flat project in Dubai. 2. L&T invest about $200 million. 3. Voltas of about Rs 400 crore

4. BANK OF BARODA: The bank has exposure in Dubai real estate which is to the tune of 5-6% of the total loan book. Bank of Baroda has 10 branches in the region. 5. OMAXE: The real estate developer is planning to exit two real estate projects in Dubai. Company has planned an investment of Rs 2850 crore. 6. SPICE JET: Dubai World investment arm Istithmar holds 13% stake in the Spice Jet. 7. ABAN OFFSHORE: The Company has deployed 6 rigs in the West Asia. 8. GEOJIT FINANCE: Kerala based brokerage firm has major client base in the Middle East region. Any crisis in the region will affect its top line. 9. FEDERAL BANK: South Indian bank does major business from the Middle East region. It provide for the remittance and other service. Any problem will directly or indirectly hit the bank

Effect on Indian Bank

According to RBI Indian Bank having lesser exposure than other countries bank . BOB exposure is 6.6% of their loan book . SBI having 0.2% of their loan book . ICICI and CBI having less stake. Percentage Indian Bank Branches having stake in Dubai are BOB:6, SBI:1, UBI:1, ICICI:1.

IMPACT ON INDIAN ECONOMY

Dubai world, has business tie-ups in different countries including India.Thus projects, may be delayed( resulting in cost increase), or dropped, or prolonged. Unemployment problem may arise in Dubai. Enterprises may have to retrench a portion of their employees.50 lakh Indians are working in Dubai and other UAE countries. FII s who have business ties with Dubai World, may face loss. 70 financial institutions have lent credits to Dubai world. Banks in Duabi may face crisis. When the world is recovering from last year's economic recession, this may push it back to same position.

CONCLUSION
The situation is very fluid and time is difficult for Dubai. Dubai World is probably in a mess due to cash-flow mismatch. Inspite of all these, experts hope that it is possible to recover.It comes out of past experience. Dubai had faced similar economic crisis in 1999.Then Abudhabhi, another emirette in UAE, had helped Dubai by lending a loan of $1,00,000.Abudhabhi is a financially stable country..It can help. But the quantum of need this time is muchmore than it was in 1999.Just on 29th,November,Abudhabhi has announced that it would consider the financing aspect,item wise, taking each main transaction on merits.It has also clarified,it is not going to take full responsibility of all loans.

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