For the countries of the Gulf, the ABS party's over before it ever got started. Fitch Ratings recently released a brief commentary on how eroding property markets in the region are putting deals in harm's way.

But even in a worse case scenario, the effects would ripple in a puddle, not an ocean. There are only four deals rated by the agency.

Still, there was, not too long ago, heady optimism about the securitization prospects for states in the United Arab Emirates. With its global lure, epic real estate projects and rivers of oil money, Dubai, in particular, oozed securitization potential. Not anymore. "A number of the projects presented to Fitch, which were meant to get off the ground this year, have now been scrapped," said Jaime Sanz, senior director at Fitch.

In addition, the governments that once provided explicit or implicit support to these projects are probably less inclined to do so as their coffers diminish thanks to weak oil prices.

Three of the structured deals Fitch rates in the region are based in Dubai. The agency downgraded the only other one, Blue City, two weeks ago, with the $262.5-million senior tranche cut to 'B+' from 'BBB-.' That deal is a securitization of a $925 million financing package to develop a high-end resort about 90km from Muscat, the capital of the Sultanate of Oman. Poor sales performance and conflicts among the project's shareholders triggered the downgrade.

In a recent report, the agency sees more trouble ahead, even though outstanding deals generally have conservative assumptions in their assessment of potential drops in price. For instance, the 'AA' rating on a deal backed by lease payments would hold, even with a market value decline of 70%. Overall, two previous pillars of strength for the sector have grown wobbly. One is the waning strength of capital generated by moneyed offshore investors, repatriated sovereign funds, and a burgeoning ex-pat community. The other is the reversal of ample global liquidity, which could lead to more capital flowing out of the region.

(c) 2009 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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