Krong Angkor

Dubai fallout limited

The Thai financial sector and other businesses are likely to feel little impact from any possible global financial turmoil following the attempt to reschedule debt payments by the state-run investment firm Dubai World and its subsidiary Nakheel.

With US$59 billion in liabilities, Dubai World is seeking a "standstill" and an extension of maturities until at least May 30 next year. The sum includes $3.59 billion in Islamic bonds maturing on Dec 14 for Nakheel, the developer of the emirate's iconic palm-shaped residential islands.

The announcement triggered a sharp fall in stock markets worldwide yesterday. The Stock Exchange of Thailand posted a relatively modest decline of 0.78% in normal turnover worth 18.5 billion baht.

Finance Minister Korn Chatikavanij was quick to declare that he believed Thailand did not face any stock or property market bubbles as the country's economic recovery began to shape up.

Interest rates and inflation are not issues of concern while Thai financial markets are flush with liquidity, he said.

"We will try to maintain currency stability to facilitate normal trade and any rate rise would not be in line with our current policy," Mr Korn said.

An analysts' report by Finansia Syrus Securities Plc said the Dubai announcement certainly had a psychological impact, reviving concerns over the types of credit risks that triggered the global financial meltdown 14 months ago.

Finansia Syrus sees limited impact on Thai stocks including the contractors Ital-Thai Development Plc (ITD) and Nawarat Patanakarn Plc (NWR), which have joined together to work on a project in Dubai. Bank of Ayudhya (BAY) is likely to have the greatest exposure to risk with about 500 million baht invested in the Middle East, but it is not involved with Dubai World, the brokerage said.

Power Line Engineering Plc (PLE) should see no impact as it sold its stake in the joint venture Power Line Gulf Construction LLC in Dubai in September, according to the report.

Polpat Karnasuta, the president of the Thai Contractors Association, said he expected only marginal impact on local contractors as they had slowed their activities in Dubai since last year and no companies had taken any jobs directly with Dubai World or Nakheel.

The Thai construction business in the Middle East is concentrated mainly in Qatar, though many Thai construction workers are in Dubai and their jobs could be at risk. But the impact would depend on the nature of the industry.

"The bubble bursting in Dubai may create an opportunity for investors to invest there," said Mr Polpat.

Mr Polpat, also the president of NWR, said his company's joint deal with ITD in Dubai completed its construction work last year but still could not collect 800 million baht, for which both companies had already set aside reserves for doubtful debt. They are now in the debt dispute settlement process.

Executives of Minor International Plc, meanwhile, said they remained confident the latest development would not affect the company's plan to manage a hotel owned by Nakheel.

The company has a contract to manage a 300-room hotel owned by Nakheel in Dubai due to open in 2012, by when the Thai executive expects Dubai's financial problems to be resolved.

Bumrungrad Hospital Plc (BH), which earns a lot of revenue from Middle Eastern patients, said it had already scrapped a planned joint venture to build a hospital in Dubai with with the Dubai investment group Istithmar.

According to Curtis Schroeder, Bumrungrad's Group CEO, BH suspended the venture plan last year and sold back its entire stake to Istithmar earlier this year.

In 2005, Bumrungrad signed a joint-venture agreement with Istithmar to build a hospital in Dubai. Bumrungrad planned to invest US$9.7 million for a 49% stake. However, Istithmar still holds a 5.96% stake in BH.

Somkiat Anuras, vice-chairman of the Thai Chamber of Commerce, said the Thai economy and businesses are unlikely to be affected by the Dubai World fallout, as there were few Dubai investments here.

"In the past, Dubai had just expressed interest in investing in Thailand and proposed a number of investment projects, but the real investments have never taken place," said Mr Somkiat.

Relate Search: Dubai World, Nakheel, Korn Chatikavanij, Ital-Thai Development Plc, Nawarat Patanakarn Plc, Bank of Ayudhya, Power Line Engineering Plc, Power Line Gulf Construction LLC