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Tue 15 Jun 2010 04:07 PM

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Dubai World lenders may need 10% provision - analyst

The effective haircut could be between 30 to 40 percent, Credit Suisse boss says.

Dubai World lenders may need 10% provision - analyst
(Getty Images)

Dubai World’s creditor banks may have to set aside 10 percent of the value of their loans to the company to cover losses after the state-owned company altered the terms on $23.5bn of debt, Credit Suisse Group said.

“The effective haircut could be higher than that,” Mohamad Hawa, head of Middle East and North Africa equity research at Credit Suisse, said at a news conference in Dubai on Tuesday. “You can arguably say it’s between 30 to 40 percent,” although the provisions the banks would have to take would be lower because of accounting and central bank regulations. “We do expect something like a 10 percent provisioning on this debt,” he said.

Dubai World, the holding company whose Nakheel real- estate unit is building palm-tree shaped islands off the emirate’s coast, said May 20 it reached an agreement with its main creditor group to restructure $14.4 billion of bank debt and $8.9 billion of government liabilities as it seeks to resolve a debt crisis that roiled global markets last year. It said banks would be paid $4.4 billion in five years and another $10 billion over eight years at below-market interest rates.

Dubai World’s seven biggest lenders - Emirates NBD and Abu Dhabi Commercial Bank from the United Arab Emirates and foreign lenders Royal Bank of Scotland Group, HSBC Holdings, Lloyds Banking Group, Standard Chartered and Bank of Tokyo-Mitsubishi UFJ - negotiated the new debt terms with Dubai World on behalf of more than 90 banks.

The combined non-performing loans of six of the seven largest banks in the U.A.E. that Credit Suisse covers may rise to 3.9 percent of gross loans in 2010 from 2.8 percent at the end of last year, Hawa said. Overall bank lending is likely to grow 8 percent this year, although liquidity will remain tight over the next two years because of debt restructuring at some of Dubai’s state-owned companies, Hawa said.

National Bank of Abu Dhabi, the UAE’s second- biggest bank by assets, and Abu Dhabi-based First Gulf Bank are the best UAE bank stocks to buy, Hawa said.

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