BL: Dubai Default Swaps Rise to Highest Since Debt Delay (Update1)
By Laura Cochrane
Feb. 12 (Bloomberg) -- The cost to protect against a default by Dubai rose to the highest level since state- controlled holding company Dubai World said in November it wanted to delay debt repayments.
Credit-default swaps linked to Dubai debt jumped the most in two months to 638 basis points today from 585 basis points yesterday, the highest since Nov. 27, two days after the company said it wanted to postpone payments, according to CMA Datavision at 2:15 p.m. in London. Dubai’s Islamic bond due 2014 fell to 87.125 cents on the dollar from 89 cents, the lowest since the debt was sold in October, according to Royal Bank of Scotland Group Plc prices.
Dubai World, developer of the world’s tallest tower, said in November it wanted a standstill agreement from creditors so that it could restructure $22 billion of debt. The announcement shook investor confidence around the world and sent Dubai default swaps, which rise as perceptions of credit quality deteriorate, to as high as 647 basis points.
Abu Dhabi’s government provided $10 billion for Dubai’s financial support fund on Dec. 14 to help repay obligations, including the $4.1 billion needed for payments on the Islamic bond of Nakheel PJSC. Dubai World has yet to present an offer to lenders or say when a deal may be struck.
Credit default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point is 0.01 percentage point and is equivalent to $1,000 a year on a contract protecting $10 million of debt.
To contact the reporter responsible for this story: Laura Cochrane at lcochrane3@bloomberg.net
Last Updated: February 12, 2010 10:13 EST
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