Dubai crisis hits Saudi stocks

RIYADH: Saudi stocks dropped 2.3 percent but then recovered slightly in early trading on Saturday as Dubai's troubles spread to the Gulf's largest equities market by capitalisation.

In its first session since Dubai announced it would not guarantee the debts of the state-controlled Dubai World conglomerate, the Saudi market's main TASI index was at 6,270.58 at 0818 GMT, down from 6355.82 at its last closing on November 25.

Banking and finance stocks fell two percent percent despite central bank chief Mohammad al-Jasser's insistence on Friday that Saudi banks had only a small exposure to Dubai's problems.

"There is no danger to the banking system in the kingdom," said Jasser, governor of the Saudi Arabian Monetary Agency (SAMA).

"There is no danger that should force (investors) to run away from the market," he told Al-Arabiya television.

Saudi Arabia's Tadawul market was closed for two weeks for the Muslim Eid al-Adha holiday, and traders had not had a chance to react to Dubai's announcement late on November 25 that it would seek a delay in payments on some of Dubai World's 59 billion dollars in debts.

Trading on a Saturday-Wednesday week, the Saudi stock exchange was the only one in the region open on Saturday.

Dubai's announcement sent shockwaves through the global financial system and regional stock markets plunged in the following days.

But Jasser and other Saudi analysts said that the oil giant's economy had a strong footing and little exposure to Dubai's troubles.

Saudi Arabia's economy and very inward-focused banks "just don't have those issues" that have hit Dubai hard, said Paul Gamble, head of research at Jadwa Investment.

"The (Saudi) banks themselves as far as we understand have minimal exposure" to Dubai generally and Dubai World specifically, he said.

Saudi banks have not disclosed their exposure to Dubai entities, but Jasser said their exposure to Dubai World debt was less than 0.2 percent of their balances.

A Deutsche Bank analysis estimated they had no more than one percent of their risk assets in Saudi Arabia's small neighbour.

The Saudi central bank prevents most external lending, said the head of one local bank.

"If Saudi banks want to get cross-border exposure, they have to get approval from SAMA on a case by case basis. It's not that easy," he said.

Like Dubai, Saudi Arabia's economy is undergoing a massive construction boom.

But unlike Dubai's heavy focus on commercial real estate, most of Saudi Arabia's spending is in key infrastructure -- roads, railways, airports, ports, and power, water, health and educational facilities -- that the oil-rich country is paying for with cash.

And while this investment heavily involves state companies that do borrow money, Riyadh's debt is a low 14 percent of gross domestic product.

The government, meanwhile, is flush with reserves which reached 389 billion dollars in October, up 8.8 billion dollars on the previous month due to rising oil prices.