How much faith in bankers?
Posted on | November 27, 2009 | No Comments
How much faith in bankers?
My, my, what a difference a few weeks make.
Earlier this month — when all still seemed relatively well in the UAE emirate of Dubai — Barclays Capital was among those touting Dubai-related debt as a decent investment for clients. The bank even confidently predicted the repayment of the now infamous Nakheel sukuk.
In fact on November 4 — the day Moody’s slashed its ratings on five Dubai government related entities — BarCap analysts wrote:
We expect several developments to act as positive catalysts for Dubai’s sovereign spreads. First, the likely repayment of the Nakheel sukuk in December. Second, Dubai’s ability to raise the second USD10bn tranche with the support of Abu Dhabi. Third, a successful conclusion of the merger between Emaar and Dubai Holding, as well as a solution allowing mortgage providers Amlak and Tamweel to resume lending.
On that basis, we recommend a long position in Dubai sovereign credit and see today’s negative price actions as an opportunity to buy. While the newly issued sukuk is our preferred instrument, we also feel comfortable in a recommendation to sell 5y CDS outright or against the CDX EM Index in a relative value trade.
Moody’s, by the way, had warned Dubai’s government was under no obligation to extend support to any government-related issuers either directly or through the support fund.
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