Asia banks, builders battered by Dubai debt doubts

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Shares of leading banks across Asia, including HSBC Holdings and Standard Chartered, tumbled on Friday as concerns grew over exposure to Dubai, after the emirate said two of its flagship firms planned to delay repayment on billions of dollars in debt.

Asian property developers were also hit, with Australia's Leighton Holdings and Japan's Obayashi Corp losing ground on fears of losses from some of Dubai's extravagant construction projects.

The emirate shook markets on Wednesday when it said it would ask creditors of state-backed Dubai World and one of its units to agree to delayed debt repayments as a step towards restructuring. Dubai World has USD 59 billion of liabilities, representing a large part of Dubai's total debt of USD 80 billion.

The Dubai government's announcement prompted Standard & Poor's and Moody's Investors Service to sharply cut their ratings on several government-related entities. Moody's slashed some units to junk status and S&P said the restructuring could be considered a default.

Exposure to Dubai could have a "meaningful impact" on banks across Asia, said Daniel Tabbush, Asia banks analyst at CLSA in Bangkok.

"Within banking specifically, the biggest exposure appears to be with Standard Chartered and, secondly, with HSBC, followed by DBS," Tabbush said, adding that not all banks in Asia have given details on their exposure.

Shares of Standard Chartered fell nearly 5% in Hong Kong, and HSBC dropped 5.4 percent. Singapore's DBS Group was untraded due to a market holiday. DBS was not immediately available for comment.

Standard Chartered said in a statement it did not comment on specific clients, adding: "We are fully aware of our disclosure obligations, and would make a statement in the event that we had anything material to disclose."

HSBC was one of several banks that were among bookrunners on an outstanding USD 5.5 billion syndicated loan to Dubai World in June 2008, according to Thomson Reuters LPC data.

Banks may have sold down their loan exposure in the secondary market, and one analyst estimated bookrunners typically retain only about 10-15% of a loan or bonds.

Shares in Japan's Mitsubishi UFJ Financial Group and rival Mizuho Financial Group both dropped a little more than 1 percent, while Sumitomo Mitsui Financial Group fell more than 2 percent.

Mega Financial, Taiwan's No.4 financial holding firm by assets, said it had exposure to Dubai World's loans and was trying to determine how much.

"We are very concerned about the situation," Grace Lin, an executive vice president, told Reuters by phone. "We heard some other Taiwan banks also have exposure."

In South Korea, the Financial Supervisory Service said in a statement dated November 26 that the country's financial institutions' exposure to Dubai was just USD 88 million, with exposure to Dubai World at about USD 32 million.

But bank shares still retreated, with KB Financial Group, Shinhan Financial Group and Woori Finance Holdings all down by around 4%.

"Although local banks' exposure is negligible, falls in European bank stocks and broader concerns about global banks' exposure are pressuring the sector," said Lim Il-sung, an analyst at Meritz Securities. "A potential rise in risk premiums may render borrowing costs heavier for banks."

Australian builder Leighton, majority owned by Germany's Hochtief, said it was owed money on a few separate Dubai building projects, but the situation was not new.

"We are confident we will recover the moneys owing, but the timing is uncertain," a spokesman told Reuters. He did not name the projects or give details on how much was owed.

Leighton shares were trading down 3.6% at 0400 GMT.

In India, shares in DLF, the country's biggest listed real estate firm, fell as much as 8 percent in early trade.