Dubai World in Restructuring Talks

GOOD MORNING. Stocks in Asia closed higher; futures in the U.S. pointed higher.

In a statement released early today, Dubai World announced plans to restructure about $26 billion of the $59 billion it owes, easing investors’ minds. But while the company’s plan now seems less likely to pose a global threat, local markets were not relieved.

The plan will cover debt owed by its main property firms, Nakheel and Limitless, the first of which has $3.5 billion in Islamic bonds coming due in two weeks.

Dubai emphasized on Monday that the government-owned conglomerate was an independent company, raising worries about its plans to guarantee any liabilities. In addition, “The lenders should bear part of the responsibility,” Abdulrahman Al Saleh, the director general of the emirate’s finance department, said on state-run Dubai TV.

Discussions have commenced with the banks of Dubai World and are proceeding on a “constructive basis,” Dubai World said in the statement, adding that it expects the restructuring process “will be carried out in an equitable way for the overall benefit of all stakeholders.”

While investors are relieved to find that it’s $26 billion and not the entire $59 billion that will have to be restructured, the process will take time and local markets were pressured by uncertainty. The Dubai exchange, which lost 7.3% on Monday, was losing another 6% early Tuesday. Abu Dhabi, which gave up 8.3% on Monday, was off by another 5%.

IN OTHER NEWS:

After two bankruptcies and 677,081 “Cash for Clunkers” sales, what does the U.S. auto market look like now? Major auto makers release their November sales reports later today. Total light vehicle sales in the U.S. market were flat year over year in October, and analysts expect to see a bit of year-over-year growth in November.

Year-over-year growth doesn’t mean a return to pre-crisis sales volumes, however. After a post-clunkers September dip, October sales rebounded to a 10.5 million annualized rate, far from 2007’s 16.1 million sales. “It’s not going to be a V-shaped recovery for autos,” says Keith Hembre, the chief economist at First American Funds. If auto sales hold at a roughly 10.5 million annualized rate through the fourth quarter, they’re likely to be a slight drag on fourth-quarter GDP. Sales could even see a year-over-year decrease in 2010 if commercial real estate woes further hinder banks’ ability to lend and consumers are left with even less access to credit.

In an environment of slow sales growth, the fight over market share is increasingly important. “Toyota’s not gobbling up market share the way that it used to,” says Efraim Levy, an auto equity analyst at Standard & Poor’s. Toyota’s (TM) October sales were flat year-over-year, while Hyundai saw 48.9% year-over-year growth.

Of the Detroit carmakers, post-bankruptcy Chrysler’s October sales represented a 30.4% decline, while both Ford (F) and General Motors saw single-digit sales growth. Based on recent comments from GM management, “they sound like they’re going to report some decent numbers” for November, says David Whiston, an auto equity analyst at Morningstar. GM came out of bankruptcy with good products ready to go, but “I’m not expecting any good news from Chrysler any time soon,” Whiston says. Early in November, Chrysler presented a plan the company said would allow it to break even on a net income basis by 2011. Meanwhile, Whiston believes Ford is likely to continue gaining market share from its American competitors.

The good news for beleaguered automakers is that cost cuts should allow for rapid improvement in profitability even assuming modest sales growth, Levy says. That bad news is that the industry cannot hide from slow sales forever. At some point, traders are going to want to see cars moving off the lot, or they’ll move on themselves.