Dubai Shares to Rally as Dubai World $24.9 Billion Deal Passed

13/09/2010 00:00 AST

Dubai shares may extend their September rally after Dubai World received approval from creditors to change the terms on $24.9 billion of debt, according to Credit Suisse Group AG and Al Fajer Securities LLC.

“I expect another 5 percent increase at the open, but not much more than that because the market has already climbed” in anticipation of a deal, Mohamed Dwaikat, senior broker at Al Fajer Securities in Abu Dhabi, said yesterday. “We’re sensing a lot of optimism among investors we have been in touch with” since the announcement.

The Dubai Financial Market General Index has surged 7.3 percent to 1,592.24 this month, paring the decline for the year to 12 percent. That compares with a 2010 gain of 2.4 percent for the MSCI Emerging Markets Index. U.A.E. markets open today for the first time since the state-owned holding company said Sept. 10 it agreed with about 99 percent of creditors on its debt restructuring.

Dubai World, one of three main state-owned holding companies in the emirate, and its real-estate developer Nakheel PJSC sent emerging market stocks tumbling in November after being forced to seek new debt terms because the deepest financial crisis since the 1930s led to a more than 50 percent drop in property prices. Dubai had racked up $109.3 billion of debt as it transformed itself into a financial-services and tourism hub, with about $15.5 billion due this year, the International Monetary Fund estimates.

Credit-default swaps tied to Dubai government debt narrowed 4 basis points to 458 in London Sept. 10. The contracts, which pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government fail to adhere to its debt agreements, reached 627.4 at the close on Feb. 12, the highest this year, according to CMA prices.

‘Cheap and Compelling’

“Valuations are cheap and compelling, and some investors may say this is one cloud out of the way even though there are still a lot of issues left,” Kamran Butt, head of Middle East equity research for Credit Suisse’s private bank, said yesterday. For the rally to be sustained, “we need some other catalysts mainly some quarterly result, and a positive and less volatile global market backdrop,” he said.

Shares in Dubai’s DFM General Index trade at an average estimated price to earnings ratio of 6.1. That compares with 12.3 for the MSCI Emerging Market Index, according to data compiled by Bloomberg.

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Bloomberg