Saudi banks have minimal exposure to Dubai and the direct impact on the Saudi economy will be small according to a report by Jadwa Investment, a Riyadh based investment firm. However, the recently published report also highlights that questions will be raised about Dubai led projects in Saudi Arabia.

As per Jadwa, Saudi banks have very little exposure to Dubai World. Official figures from SAMA state this exposure at just 0.2% of total financial sector assets. Though some financial institutions in Saudi hold Nakheel bonds, this again would be a small portion of the overall portfolio of these banks.

Saudi Stock Market ('Tadawul') fell by only 1.1 percent on the first day of trading after Dubai World announced standstill on its debt repayments. Statistics show that 1.2% of the total trade by value on Tadawul was transacted by non-Saudi GCC investors as per trade figures for November. This depicts limited exposure of non-Saudi investors on Tadawul who might sell their stocks to offset losses in other markets. It can be safely assumed that no correlation exists between the sharp fall in the Dubai Stock Market and the performance of Tadawul during the Dubai debt fallout thus somewhat isolating the Saudi market from the crisis.

The report adds that no data is available on Saudi real estate ownership in Dubai. However, the Dubai property market has already seen prices fall by more than 50% prior to the Dubai World announcement. This would suggest that Saudi investors who had such exposure have already suffered losses and the recent news will not have any major impact.

Discussing the potential impact on Saudi businesses with exposure to Dubai, the report adds that there were signs of improvement as property prices had risen and the exodus of expatriate workers during the summer period was lower than anticipated. However, this recovery process has faced a major setback in the face of this crisis and even the IMF has made a downward revision to its UAE GDP growth forecast.

Finally the report outlines an implication for Saudi companies in the sukuk market that were expecting to raise funds through this alternative source. The first major sukuk default will act as a litmus test for the resolution of such legal issues. Investors will be closely monitoring the fallout and any mishandling in this regard will complicate the sukuk issuance process for local and regional enterprises.

Source: Report by Jadwa Investments