Saving the day

14 December 2009 - The Economist

"DUBAI, one of seven members of the United Arab Emirates (UAE), is now in the middle of its international film festival, which includes “City of Life”, a film set in Dubai and directed by a local. But the most gripping cliff-hanger is playing out in Dubai’s debt markets. On Monday December 14th Abu Dhabi, the wealthiest member of the UAE, arrived on the scene at the last moment to rescue its neighbour from the brink of default.

It provided $10 billion to Dubai’s government, more than enough to repay the $4.1 billion due on Monday to holders of a sukuk, or Islamic bond, issued by Nakheel, a prominent developer. Nakheel belongs to Dubai World, a holding company owned by the Dubai government, which less than three weeks ago requested a standstill on repayments of $26 billion of debt, perplexing investors and panicking global markets.

Just as every film-goer knows that the damsel in distress will be saved in the end, so Dubai’s creditors had long assumed that the emirate would be saved by its oil-rich neighbour. But the standstill announced on November 25th departed from this script, creating genuine suspense.

Investors knew Abu Dhabi could not let its neighbour fail without damaging its own economic interests. They assumed that Abu Dhabi knew this too. Therefore when it let Dubai walk to the edge, it was deeply unsettling. Either Abu Dhabi's policymakers did not know the damage this would do, or they did not care. The announcement on Monday suggests that Abu Dhabi did care. It just did not anticipate quite how badly creditors would react.

Nakheel’s creditors can now be repaid, but Dubai’s credibility cannot be repaired so easily. Its solvency rests on a relationship with its neighbour that is impossible to fathom. At least this latest handout dropped the fig leaves that disguised Abu Dhabi’s previous gestures of support. It was given directly from one government to the other, unlike the $10 billion routed through the UAE’s central bank in February and the $5 billion lent in November through two commercial banks partly owned by the Abu Dhabi government.

Even now, Dubai’s creditors cannot expect every claim to be redeemed in full. The money left over after the Nakheel sukuk is repaid will go to Dubai World’s suppliers and contractors, who endured a standstill on payments long before the company asked the same of its creditors. The money will service Dubai World’s other debts only if the group is “successful in negotiating a standstill as previously announced,” the statement says.

If those negotiations falter, Dubai World’s fate will be governed by a brand new “reorganisation law”, unveiled on Monday. The UAE already has a bankruptcy law, but almost no one uses it. Any creditor foolhardy enough to test the regime can expect to recover just ten cents on the dollar, the World Bank calculates.

The new decree instead appoints three judges from the Dubai International Financial Centre (DIFC), a 110-acre “free zone” with its owns laws, written in English and based on common-law principles. The judges include one who formerly sat in the High Court of England and Wales and a Singaporean who previously served on his country's Supreme Court. They will apply DIFC law, with some tweaks, including a provision to allow for an automatic stay on creditors’ claims.

Their expertise will not be needed if Dubai World’s creditors now come to terms. The chances are good that they will. The shock they have suffered over the past three weeks may have softened them up. And the underlying case for a restructuring of Dubai’s debts has some merit, even if the government has so far handled it abysmally. Dubai, one might say, has had one life. Now it must make a success of its second."

Dubai faces self-made public image ‘disaster’

12 December 2009. Financial Times

"When public relations executives reflect on the way Dubai has handled its communications strategy over the past two weeks, they grimace before the adjectives fly thick and fast.

“Shambles” and “disaster” are common criticisms, along with agreement that the handling of the announcement that Dubai World was seeking a standstill agreement with creditors exacerbated market reaction, triggered uncertainty and caused untold damage to the reputation of the Gulf’s business hub.

The mistakes made would be part of “a fool’s guide of what not to do when announcing something of this level of importance”, says one PR executive.

The executive cites three critical errors: the timing of the statement, released just as an extended Middle East public holiday began and the US prepared for Thanksgiving; the lack of detail, with the standstill request mentioned in the penultimate paragraph of a one-page statement; and the failure to offer investors and analysts any forums to gather information about what the statement meant.

The result was a vacuum in which speculation was rife and investor confidence nose-dived – particularly after officials had talked up the prospect of the emirate meeting its obligations ahead of the statement.

The irony is that Dubai is awash with public relations companies, from the large companies that ply their trade across European financial markets to independent firms unique to the Middle East. And Dubai Inc has employed some of the best known.

In March, Finsbury was brought in by Dubai’s Department of Finance to explain “to stakeholders the new financial strategy of Dubai” as the emirate struggled with its debt burden. But in July, after a change at the top of the department, the firm was replaced by Brunswick, another respected agency, which has had to handle the November bombshell and its aftermath.

The question experts are now asking is whether the emirate’s leaders are willing to heed advice from the consultants they hire.

During the boom years, they were able to brush aside scepticism as Dubai burnished its brand with each extravagant project. But since the crisis struck, there has been scant willingness to acknowledge the severity of Dubai’s problems, observers say. Brunswick declined to comment, citing client confidentiality.

One problem, observers say, is the autocratic system of governance in a city-state ruled by an absolute monarch that is bereft of democratic institutions.

Michael Field, an expert on the region, says: “If Dubai had allowed open debate – a free press, some questioning of its policies, citizens being able to sue the government, etc – it might not have got itself into its present situation.

“But it has been absolutely impossible for anyone in public to question the Dubai dream. And since the apparatus began to crumble about a year ago, Dubai has been in denial of its problems. It seems utterly unable to criticise itself or accept any criticism from foreigners.”

When Sheikh Mohammed bin Rashid al-Maktoum, Dubai’s ruler, first spoke on the issue – almost a week after the standstill was requested – he blamed the media, accusing it of exaggeration. Earlier, he had used an investment conference to tell critics to “shut up”.

Lower-level officials are either unable or unwilling to speak out, observers say. “It is difficult to get a statement from any executive; everybody seems to be scared to say the wrong thing,” says Eckart Woertz at the Gulf Research Centre. “Dubai World needs a public face, a captain of the ship to say ‘there is a leakage but everything is under control,’ but there is no public face.”

Dr Woertz points out that some lieutenants had been demoted during the economic crisis. Two of Dubai’s best communicators, Nasser al-Shaikh, the former finance chief, and Omar bin Sulaiman, who headed the Dubai International Financial Centre, were sacked this year.

PR executives believe Dubai still has a chance to repair some of the damage, but only if attitudes change.

“The race to be the trade and financial hub of this region is still Dubai’s to lose, they are still in pole position but there has to be some change of attitude,” says one. “Instead of looking to blame people, actually just sitting around and saying, ‘let’s focus ... and how we can bring the international community along with us?’”"

In Dubai, they still don't get it

The Guardian - 9 December 2009 Brian Whitaker.

"The emirate sees itself as a modern financial centre, yet reverts to authoritarianism and censorship in the face of bad press"

"It began with a caricature of Dubai's ruler, Sheikh Mohammed bin Rashid al-Maktoum, floundering in a sea of debt. At the Sunday Times, they probably thought nothing of it: far less flattering images of politicians appear day after day in the world's press. But in Dubai it proved too much for the authorities, and the paper was duly banned from sale in the once-gilded emirate.

A few days later, Jim McLean wrote an article in its sister publication, the Times, headed: "Confidence will never return in Dubai." As the headline suggests, it was highly critical. The article said Dubai World's failure to honour its obligations had shaken the international investment community's faith in Sheikh Mohammed. "The international financial community, and I know this to be the case in London, won't do business with Dubai again," one expert on Gulf economics was quoted as saying.

"Experienced analysts no longer trust the government's statistics, claiming they do not fully reflect the amount Dubai owes its foreign creditors," McLean continued, adding: "Sheikh Mohammed cast himself as Dubai's chief executive, and if this were a company he would be on his way."

This article was blanked out on the orders of the censors in copies of the Times available in Dubai. Local papers have also had problems covering the emirate's financial crisis.

There are two obvious points to be made about this behaviour by the Dubai authorities. First, it ensures that the offending articles get far more attention than they would otherwise have done (the Streisand effect) and, second, it does not prevent anyone from looking them up on the internet.

But there's more. Under the headline "The return of colonial extortion", Akhbar al-Khaleej, an Arabic language paper with a leftist-nationalist slant, accused McLean of "brazen racism", and claimed to detect the "invisible hands of British government circles" behind his article, raking up the Times's coverage of the 1956 Suez crisis as evidence of its enduring loyalty "to the interests of the British colonial empire".

McLean's article may have overstated its case, but the way to deal with that is by challenging its arguments, not censorship or outdated conspiracy theories.

The problem is that in Dubai, deep down, they still don't get it. Dubai likes to see itself as a modern global financial centre (and, indeed, as a centre for the world's media). At the same time, though, it tries to cling to certain local "traditions" such as respectful deference towards its unelected ruler and government controls over the press which include punishing journalists who write "misleading" news that "harms the country's economy".

But they can't have it both ways. If you want free markets for investors, you have to have free media, too. Markets are based on differences of opinion about the value of things. If they are to operate as intended, they need access to information. Differing opinions have to be expressed – and challenged – until eventually some kind of equilibrium is reached.

This requires a degree of openness and transparency that many in Dubai (and Arab societies more generally) find hard to accept.

There are genuine cultural differences here, between the rough and tumble of the western media – where questioning the performance of presidents and prime ministers is the routine business of journalists – and the idea that when things go wrong, fingers should not be pointed directly by naming names, or that it is unpatriotic to suggest the economy might be going down the pan.

If Sheikh Mohammed wants to be treated with the respect that he obviously feels he deserves, then he can confine himself to being a titular figurehead. But if he wants to combine being royal with life as a politician and as being the centrepiece of Dubai's business affairs he becomes fair game – just like anyone else."

Dubai needs more time

8 December 2009 - Reuters

"Investor confidence in Dubai took a fresh knock on Tuesday as its leaders dithered over a rescue for debt-laden company Dubai World [DBWLD.UL] and ratings agency Moody's slapped a downgrade on government-related debt.

"You can usually take the view that no news is good news, but in Dubai's case it's quite the opposite -- investors need to hear some developments on Dubai World's restructuring," said Julian Bruce, EFG-Hermes director of institutional equity sales.

Leading lenders were waiting to hear from the flagship firm as they negotiate payment on a $3.5 billion sukuk, the world's largest, issued by Dubai World subsidiary Nakheel and viewed as a litmus test for the creditworthiness of many Dubai-linked corporations.

On Nov. 25 Dubai World [DBWLD.UL] said it needed a a six month standstill on payments, but on Tuesday, a government official said it would need more time than that.

"The period of six months would be too short for a full restructuring. The six month period would focus on the creditors, the contractors and so on," Abdulrahman al-Saleh, head of the Dubai finance department, told Al Arabiya TV.

Dubai World is a flagship company of the emirate, building everything from ports to luxury apartments. It is owned by the Dubai government, but state officials have said they will not sell other government assets to bail it out, so the company's debt is trading at about half its face value.

Dubai World met its main creditors on Monday to discuss its request to delay repayment of $26 billion in debt.

Dubai's government would support the group "as an owner", Saleh said, without being more specific.

"The government is present to provide backing as an owner ... we would like to emphasise the distinction between guaranteeing and backing. The company receives large backing from the government since its inception," he said.

Further confusion hit home when Saleh said a Dubai fund had given Dubai World $2.45 billion. A source later clarified that the money was not new, and was made as part of $10 billion aid to business in February.

Dubai stocks slid and debt markets were battered by the continued uncertainty.

The cost of insuring Dubai's debt against restructuring or default rose to 515.6 basis points in the five-year credit defaults swaps market, compared to a U.S. close of 500 bps. Nakheel's sukuk XS0277553052=R, maturing this month, one fell 2 points to 50 cents on the dollar.

"The situation isn't clear -- people need further information to decide what to do," says Adel Nasr, United Securities brokerage manager in Muscat.

Dubai World's creditor steering committee is still waiting to hear from the company via its advisers as next Monday's bond repayment deadline draws closer.

"We want to hear something from the company that lays out the foundations and cornerstone of their thinking and what they're working on," a banker close to the deal said.

London-listed Standard Chartered (STAN.L)(2888.HK), HSBC (HSBA.L)(0005.HK), Lloyds (LLOY.L) and Royal Bank of Scotland (RBS.L), along with local lenders Emirates NBD ENBD.DU and Abu Dhabi Commercial Bank ADCB.AD are on the creditor panel discussing the restructuring.

The UAE central bank told local banks to report any exposure to Dubai World in a circular dated Dec. 6, bankers said on Monday.

Dubai's finance chief said on Monday that Dubai's government and Dubai World were not the same, suggesting the emirate's most valuable firms, such as Emirates airline, Dubai Aluminium (DUBAL) or its 21 percent London Stock Exchange (LSE.L) stake would not be involved in a firesale.

Dubai's debt rescheduling plans could go beyond the recently announced Dubai World standstill, extending to about $47 billion on the back of further restructuring needs of government-related entities, Morgan Stanley said in note on Tuesday."

Letter from Dubai
The glitzy, puffed-up peacock of the Middle East is imploding. Don’t gloat.

By Chris Wright, December 6, 2009

"One day last month, I was sitting in a cafe on the Dubai Creek with a locally based architect, talking about the traffic. A year ago, this conversation would likely have taken place via cellphone, with one of us explaining that we’re running a little late - which, given the state of Dubai’s roads back then, could have meant anywhere from an hour to a couple of days. On that afternoon, though, whoosh: barely a tap on the brakes.

“Well, if you build a new road every time there’s a traffic jam,” the architect said, sipping his tea, “sooner or later you won’t have any traffic jams.”

He was only half joking. In the last few years, Dubai has built two new bridges, one new tunnel, and scores of multilane highways. Then there’s the new Metro system, which cost $7.6 billion to build, or about $100 million for every kilometer of elevated track. So, yes, the traffic’s much better. It’s gotten even lighter in recent months, as thousands of expats have fled to escape Dubai’s tanking economy.

And this was before the current Dubai World bond-payment debacle, which has made the city the toast of the global finance community - emphasis on “toast.”

In a very real sense, Dubai has been the architect of its own demise. Over the last decade or so, the city’s ruling elite has operated under the principle that there’s no challenge that can’t be met if you throw enough money at it. At times, this approach has worked well - Dubai, remember, solved its hideous traffic problem in less time than it takes your average US city to fix a pothole. But things got out of hand. Having an indoor ski slope wasn’t enough, nor was being home to the world’s tallest building: Dubai had to have an even taller building, a theme park three times the size of Manhattan. Something had to give.

And give it did. In late November, the massive state-owned conglomerate Dubai World indicated that it might not be able to meet payments due on its $60 billion debt, which is a bit like driving to your landlord’s house in a Porsche and telling him you might not be able to pay the rent. The news sparked panic in world markets, with some suggesting that a deadbeat Dubai could trigger a second wave of global recession. Already, there were plenty of people eager to pick a fight with this supersized show-off of a city, and now they had something to sink their teeth into. “Bling Central,” as a British broadsheet put it, “threatens to drag the rest of us down with it.”

It’s a cruel irony: So eager for international headlines when the going was good, Dubai’s leaders are now the talk of the town. And what the town has to say is this: Idiots.

This may be the prevailing sentiment now, but it is not entirely fair. While Dubai may have blundered over the line between can-do spirit and overreaching ambition, we shouldn’t forget what a remarkable feat the city represents. Two decades ago, this sprawling metropolis was a dusty little trading town, sitting on the tail end of the Arabian Peninsula, one of the most inhospitable spots on the planet. What Dubai’s rulers have done, in effect, is to create life under laboratory conditions, leapfrogging evolution and snubbing the laws of exigency in the process. Sure, these days the plotline is starting to resemble “Frankenstein” rather than “Utopia,” but you have to give these guys credit for trying.

Many people, even in Dubai, would likely hoot at the idea they deserve any credit at all. While public criticism of the authorities here has been relatively muted - which is understandable, given that you can face criminal charges for disparaging the ruling Maktoum family - private criticism is rife. This is especially true of the thousands of expatriates living here. Mostly, the discontent expresses itself in gallows humor: Idle bankers at the now desolate Dubai International Finance Center, for instance, have taken to calling it the Dubai International Food Court. Occasionally, though, the talk takes an ugly, conspiratorial turn: We’re living in a police state. They’re going to throw us all in jail. They want us out.

Even before the implosion of Dubai World - “Dubai’s flag bearer in global investments” - the expat community here was feeling the pinch. Dubai has long attracted talent from abroad by promising a millionaire lifestyle for people on a budget: endless sun, cocktails on the beach, a doorman to wave jauntily as you enter your swimming pool-equipped home. But last year’s global economic meltdown hit the city hard, and many mock-millionaires were wiped out. People who had signed post-dated checks for school fees and rent, or who had swiped their credit cards at Ikea and Al-Futtaim Motors, faced criminal prosecution. Many of these people simply ran away.

As the city falls further into debt, a new and ominous breed of speculation has started to make the rounds. People speak of it only fleetingly, in furtive tones, as if the very words bore some terrible power: “Income tax.” If such a drastic measure were to be implemented, you could expect to see a significant bump in one-way airline travel from Dubai International to Heathrow.

As it is, Dubai’s population is set to drop by as much as 17 percent this year. You can see evidence of this in the scores of “To Let” signs along Sheikh Zayed Road and in the SUVs gathering sand in lots around the city. Many of the cranes dotting the skyline have stopped twirling, including those on three of the four gigantic artificial resort islands being built offshore by Nakheel, the flagship entity of Dubai World. These islands were once touted as the “Eighth Wonder of the World.” They now sit quietly off the coast of the city, obstructing shipping lanes, the sand from which they were formed blowing back into the sea.

It’s unclear if and when work will recommence on these islands - or, for that matter, on the scores of other mega-projects currently on hold. Dubai’s sovereign debt is believed to amount to over $90 billion, considerably more than its current gross domestic product. Abu Dhabi, Dubai’s oil-rich neighboring emirate, isn’t knocking on the door with wads of bailout money, as it has done in the past. Foreign investors aren’t falling over themselves to help out either. The city’s rulers have sought to calm nerves over the last week or so, insisting that people have “overreacted” to Dubai World’s troubles, but there’s no getting away from it: We’re in a pickle.

That said, Dubaians are a resilient people, and should never be underestimated in their ability to ignore current events. Expats who haven’t left, or at least those who still have jobs, seem more determined than ever to have a good time. Even the news that Dubai might be singularly responsible for the second scoop of a double-dip global recession hasn’t fazed people too much. The bars and beaches and malls are still full. You still get cut off by Porsche Cayennes and BMW X5s on the city’s roads. The swimming pools are still bluer than blue. Life goes on.

This, anyway, is the expat view of things. We’ll stay here as long as it’s profitable to do so, and when it isn’t we’ll move on. For locals, though, Dubai represents something more than the presence or absence of opportunity.

In the end, the most troubling aspect of Dubai’s dilemma isn’t fiscal - you bounce back from money trouble. People often say that this city is built on sand, but more than this, it’s built on an idea. Dubai likes to see itself as an example of hope triumphing over circumstance. Now that circumstance has made a mockery of this proposition, what’s left? What do you do with all that spoiled pride?

For outsiders, it’s easy to view Dubai as a victim of its own hubris. And, it must be said, the city hasn’t done itself any favors in this regard. When viewed from the air, for instance, part of the configuration of Palm Jebel Ali, one of this city’s ghost islands, spells out a poem in Arabic script. The verse was written by Sheikh Mohammed bin Rashid Al Maktoum, the ruler of Dubai, and it begins: “Take wisdom from the wise./It takes a man of vision to write on water.”

A little over the top, yes, but there’s an argument to be made that this kind of extravagant self-belief is what made Dubai possible in the first place. You’d have to be pretty sure of yourself to think that an unforgiving region like the Middle East could be fertile ground for one of the world’s most prosperous and cosmopolitan cities, and that you could build such a city over the course of a few years. You’d have to be mad to think such a thing. And now that Dubai’s here, for all its faults, you’d have to be mad to wish it away. Compared to its neighbors - the theocracies, the petroleum-fueled oligarchies, the actual police states - it really does represent a kind of fragile victory.

Earlier this year, a magazine I edited ran a cartoon whose joke revolved around one of Dubai’s most enduring cliches: “I remember when this was just sand.” The line is generally uttered by expats while pointing at a skyscraper or shopping mall, and is used to establish their been-here-longer-than-you pedigree. The idea for the cartoon was to have a forlorn-looking local gesturing at an endless expanse of sand dunes, saying: “I remember when this was just buildings.” It doesn’t seem so funny now.

Chris Wright is an editor and writer living in Dubai. He can be reached at chriswrightdubai@hotmail.com.

Correction: Because of a reporting error, this article refers to Dubai’s debt as nearly double its gross domestic product. The emirate’s sovereign debt is estimated at $90 billion, while the GDP for 2008 was approximately $80 billion.

Legal minefield awaits Dubai's Nakheel bondholders

3 December 2009 - Reuters

Dubai's assets may be virtually untouchable, so any holders of bonds issued by flagship property firm Nakheel that take legal action to recover potential losses could be wasting their time, lawyers said on Thursday.

Government-owned conglomerate Dubai World wants time to restructure $26 billion of debt it and its main property units, Nakheel and Limitless World, owe and has asked creditors for a standstill on bond repayments until May 2010.

About $6 billion of that relates to bonds issued by Nakheel including a $3.5 billion Islamic bond that matures on Dec. 14.
Creditors, including the likes of Standard Chartered , HSBC and Lloyds, have chosen lawyers and auditors to represent them and have yet to respond to the request for restructuring.

Rejection would tip the Islamic bond, or sukuk, into default, opening the door for legal proceedings.

Creditors could sue in English courts as well as in the United Arab Emirates, a seven-member federation that includes Dubai.
But even if they win and a court orders assets to be seized, the sukuk agreement and the UAE's foreign ownership laws cast doubt on whether such a verdict could be enforced, lawyers say.

The sukuk prospectus alone throws up several questions about enforceability.

"What the article (in the prospectus) is basically saying is where the agreement says English law is applicable, it is not certain that the Dubai courts would actually apply English law as opposed to local law," said Essa Jawahery, a lawyer at Elham Ali Hassan & Associates in Manama.

"The second thing it is saying is ... once the English court gives the judgement, bringing it to Dubai to enforce it might be difficult because it's not possible to take execution measures on property owned by the government or the ruling family."

The United Arab Emirates economy minister, Sultan bin Saeed al-Mansouri, said on Wednesday it is only a matter of time before Dubai World restructures its debt and meets its obligations, the official WAM news agency said.

But the troubled conglomerate's creditors are gearing up for action. Key lenders have set up a committee and picked their legal and financial representatives.

Dubai's Emirates NBD -- one of two UAE banks on the creditor committee along with four UK banks -- is the biggest creditor with outstanding loans of $3 billion, the Financial Times reported on Thursday, citing bankers and their advisers.

The panel will meet Dubai World for the first time next week, just days before the first Nakheel bond, which is guaranteed by Dubai World, matures on Dec. 14.

"The bond is covered by English law, so once they are declared in default the lawyers will be trying to attach the assets of all the subsidiaries, including Dubai Ports World," said one Nakheel bondholder, who asked not to be named.

This is unlikely to happen, said Essam al-Tamimi, Senior Partner at Dubai-based law firm, Al Tamimi and Company.

While the ruler of Dubai and the government are subject to court orders just like everybody else, their assets cannot be seized and sold by public auction, Tamimi said.

"The UAE courts will order everyone to pay their debt, you, me and the ruler, we are all equal under the law," he said.
"But when it comes to government debt, following the issuing of the judgement ... like in a lot of countries, the attachment of government assets and selling them by public auction is not allowed."

Nakheel bondholders hoping to get their hands on Dubai government assets are likely to be disappointed, especially after the government said this week it was not responsible for the debts of Dubai World. Some creditors had assumed that the Gulf emirate would guarantee the liabilities.

Confusion may have arisen from the prospectus for Nakheel's 2010 sukuk, which states: "References in the law to the Government of Dubai include its departments and any other establishment or public authority and so would include Nakheel and may include the Issuer."

For international bondholders, the recovery of what they are owed may be further complicated by the UAE's foreign ownership laws. Even if Nakheel's assets -- mostly land -- are seized and liquidated, their entitlement could be restricted, lawyers say.
For some bondholders, all this confusion has just got a bit too much.

"Remaining bondholders might be fine in the end, as we know there are real assets there, but which assets do the bondholders have claim to in Dubai jurisdiction?" asked Brinda Kirpalani, head of the credit research team at OFI Asset Management in Paris, which sold its paper following last week's announcement.

"Quantifying these assets and the recovery value, given the lack of transparency of the financial statements, along with the lack of communication, were reasons to get out."

Breaking Views: Dubai confusion

Reuters BreakingViews - 2 December 2009

"Dubai is guilty of encouraging a sovereign confusion. Until it fell on hard times, the emirate rarely distinguished between $26 billion of sovereign debt and the much riskier $50 billion or so owed by government-related entities, including Dubai World, whose repayment difficulties rocked global markets last week.

The sovereign finances of Dubai are no cause for alarm. Debt stands at a moderate 40 percent of GDP and the fiscal deficit in 2009 should only be 1.8 percent of GDP, according to an October prospectus for $6 billion in new bonds. That money was raised without difficulty.

The government also has a reasonably diverse stream of revenues. This year, 54 percent of the $9.1 billion intake is expected to come from visa, land and tourism fees, 19 percent from customs duties and 9 percent from dividends paid by the Investment Corporation of Dubai, the investment vehicle that holds the Emirates airline and stakes in local banks and utilities. Oil and gas-related revenues should provide 14 percent.

Even with a weaker economic backdrop, there doesn't seem to be any need for direct income taxes or an increase in the tiny corporate tax rate. The government won't need to renege on its pledge to keep the Dubai International Financial Center tax-free until 2054.

Entities related to the government but not supported by it — especially Dubai World, which is weighed down by borrowings against questionable real estate projects — are less fortunate. Dubai's finance minister is right to say investors should have drawn a clear line between the two.

But the government made that job harder by routinely including commercial revenues in public discussions of government finances. A year ago, officials said the emirate's total debt burden was $80 billion — a sum that included both sovereign obligations and those of government-linked investment vehicles like Dubai World.

Next time there's a gray area between government and private sector, maybe creditors will be more careful — and insist on officials being clearer, too.

The Middle East Needs Dubai

2 December 2009  - Max Boot in CommentaryMagazine.com

"For all of Dubai’s excesses it is a wonder that it has gotten this far. It deserves not ill-disguised glee at its misfortunes but a degree of respect for its willingness to flout traditional Arab taboos.

It is, for example, a place where Emiratis in white robes rub shoulders with Russian hookers in mini-skirts — a place where it’s perfectly possible to get a nice cocktail (and not a “mocktail,” as in Kuwait) in a public bar, and to do so in the middle of Ramadan if you’re feeling parched at that point. No doubt some of Dubai’s competitors, the likes of Doha and Kuwait City and its sister emirate Abu Dhabi, are licking their chops at the prospect of benefitting from Dubai’s downturn but they will be hard put to it to match its dynamism because they remain much more in thrall to traditional Arab/Muslim pieties: a combination of religious and tribal traditions that have made the Middle East a laggard in many dimensions of development.

Dubai has been a leader in the Arab world with respect to embracing modernity — which has repercussions both good and bad but in general is a force for positive change. We should all hope that it will get on its feet again soon.

The Middle East needs Dubai."

Denial and Reality

1 December 2009

What we are not going to hear from anyone in Dubai is, we are sorry, we could have handled this so much better. Instead the accusations are that the foreign media have over-reacted; that it is hate Dubai week.

Sheikh Mohammed bin Rashid al-Maktoum, the ruler of Dubai, today criticised international investors' reaction to the Emirate's debt crisis, claiming: "They do not understand anything". He did add that the country (UAE) is working on "enhancing integration between the federal and local frameworks.

In hindsight markets probably did over-react. But they reacted to a lack of information; rather than to the information that was given to them.

There are strange parallels to Tiger Woods' tribulations in the USA after his late night run in with a fire hydrant.

The media is a voracious beast and will always be unsympathetic if its target has in some ways been the author of his/her own very public predicament.

If modern media manners have taught us anything, it is that nothing works as well as the swift mea culpa. Tiger Woods'  response to the most damaging PR crisis of his garlanded life has been to sit tight and say as little as possible. Sounds just like Dubai.

Yet it could be difference. In Woods and in Dubai there is so much to admire and such expectations. Yet both prove that you should not bite the hand that feeds you, investors, fans, media.

The tragedy of being Tiger Woods or even Dubai's leaders today is that there appears no pressure to explain themselves. Both have tames their local audiences.

Alas for Woods and for Dubai; both are discovering that not everyone plays by the same cosy rules as their friends. 

Robert Peston gets the reality for the BBC.

He says that "the financial difficulties of one of the city state's most ambitious developers, Dubai World and its Nakheel subsidiary, were a consequence of known facts.

However, there were three big things that were not known:

• whether the putative guarantee from deep-pocketed Abu Dhabi for Dubai's state-linked businesses was real or imaginary;
• the potential size of impaired loans to Dubai interests;
• the identities of those exposed to Dubai, through loans and other financial commitments.

What shook the confidence of banks and investors more-or-less everywhere last week was that neither the United Arab Emirates nor ailing Dubai felt able to answer these questions last week when Dubai World announced its debt moratorium.

So fear and rumour took hold: equity markets dropped; there was a flight to supposedly safe assets, such as US Treasuries; and the price of insuring the debt of heavily indebted nations rose sharply, just in case Dubai was the first of a series of dominoes"...there really was "no excuse for the failure of the UAE and Dubai authorities to pre-empt the panic by shining a light on the magnitude of the risks being incurred by creditors to this indebted emirate, including early and unambiguous clarification of what support would be given by Abu Dhabi and the central bank."

Caveat emptor

30 November 2009

"Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct," Abdulrahman al-Saleh, director general of Dubai's department of finance, said on Dubai TV this afternoon.

Well that is clear - the Dubai government says that Dubai World is a standalone entity.

The trouble is that the ruling families, the Dubai government and the heads of Dubai's most pre-eminent companies are the same people. If creditors did expect government support it should be no surprise.

Now as the Dubai World restructuring moves ahead what does this mean for other Dubai-owned entities.

The message is that the Dubai government has no obligation to support other businesses it controls.

The threat of wider fallout potentially gives creditors a stronger hand in discussions. However, the creditors themselves are not a homogenous group. They include bond holders, large banks, and funds that have bought bank debt at distressed levels. They will have different exposures, bought at different prices.

Banks with large exposures and business interests in the region will have an incentive to seek as tidy a solution as possible.

But the risk is that some smaller lenders act ahead of the others, refusing to roll over debt or seeking to call in loans.

There is a long way to go.

And who will be selling it?

29 November 2009

Bankers from Rothschild have been appointed to help restructure Dubai World with a mandate to dispose of some of the stricken conglomerate's famous assets.

Paul Reynolds, head of Rothschild's advisory operations in the Middle East, was this week asked to work for the Dubai government's chief restructuring officer alongside Aidan Birkett of Deloitte, who was appointed on Wednesday.

The neighbouring emirate of Abu Dhabi is seen as one of the main buyers of Dubai's assets. Last year when rumours about Dubai's debt problems first started, sources said Abu Dhabi had offered to buy Emirates but Dubai had so far refused to part with its flagship carrier.

Abu Dhabi is also said to be interested in Emaar, the property company that owns the Burj Dubai skyscraper, the Dubai Mall shopping centre, and Dubal, Dubai's aluminium company.

What might be for sale?

29 November 2009 - Reuters

"Dubai will attempt to reassure markets and investors on Monday on how it plans to restructure its beleaguered conglomerate Dubai World after it requested a shock standstill from bondholders for a $3.5 billion bond maturing on Dec 14.

The lack of clarity and the prospect of bondholders rejecting the delay in repayments could lead to a fire sale of prize assets and even push the emirate to divest speculative investments made during the six-year boom that are unlikely to generate long-term revenue.

Following are details of key assets and high-profile holdings possibly up for sale.

DUBAI WORLD ASSETS

DP WORLD

One of the world’s largest port operators is arguably the crown jewel in its trophy cabinet. Its 2007 IPO, the region’s largest to date, raised almost $5 billion, but its share price has fallen by more than two thirds of its original value. The firm went to reassure investors on November 26 it was not part of Dubai World’s restructuring. Dubai World was in talks with a private equity firm to sell a stake in the port operator.

STANDARD CHARTERED

Istithmar bought a 2.7 percent stake worth about $1 billion in October, 2006. The bank signaled on Friday its exposure to Dubai World would not be material.

MGM MIRAGE

In 2007, Dubai World invested about $5 billion in casino operator MGM Mirage by buying shares and half of an $8.5 billion Las Vegas project. Dubai World last year sued MGM Mirage as credit dried up and CityCenter flirted with bankruptcy. The project has been plagued by construction problems.

BARNEYS

Istithmar World bought U.S. luxury retail chain Barneys for $942 million in 2007. Barneys hired restructuring advisory firm Perella Weinberg in August to help it mull options that would shore up its financial position.

PERELLA WEINBERG

Istithmar also invested about $100 million into the boutique investment bank in 2006.

CIRQUE DU SOLEIL

Property developer Nakheel and Istithmar bought a 20 percent stake in Montreal-based international circus touring company in June 2008 and had planned to build a theater with the group on its main palm-shaped island.

TURNBERRY GOLF COURSE

Leisurecorp, Dubai World’s leisure and sports investment unit, bought the Turnberry Golf course, home to golf’s oldest competition, from Starwood Hotels & Resorts in Nov 2008 for about $100 million.

QUEEN ELIZABETH 2 LINER

Originally bought in 2007 for $100 million to be converted into a luxury hotel and moored off Dubai’s Palm, the ship’s future has been under scrutiny since it docked at Port Rashid in Dubai last year for refurbishment. In July, Nakheel said it was mulling moving the liner to another location, or Africa.

ATLANTIS DUBAI

The resort, which opened in November to a $50 million firework display, is a joint venture with South Africa tycoon Sol Kerzner.

DUBAI PRIZE ASSETS

EMIRATES

The airline, whose chairman also chairs Dubai’s supreme fiscal committee, has $55 billion of orders of planes from Boeing and Airbus. It has been at the forefront of turning Dubai into an international hub and had been nearing a potential share sale before the financial crisis hit. Emirates has repeatedly fought back speculation it would merge with Abu Dhabi’s carrier Etihad Airways.

DUBAI Aluminum (DUBAL)

Established in 1979, the aluminum producer has become one of the world’s largest producers and exporters of the metal and in 2006 entered into a joint venture with Mubadala Development Co, a wholly-owned investment vehicle of the Abu Dhabi government to build one of the largest single aluminum plants in the world.

LONDON STOCK EXCHANGE

Borse Dubai, which took a 21 percent stake in the bourse operator in November 2007, said in June it saw its LSE investment as long-term and had no plans to sell its stake. LSE shares were among the biggest fallers on the FTSE 100 after Dubai’s debt news.

HSBC

The investment arm of Dubai’s ruler Dubai International Capital (DIC) in 2007 bought an undisclosed stake in HSBC making it one of the largest investors in Europe’s biggest banks. DIC in 2006 set up a fund aimed at buying into some of world’s largest listed equities. The group earlier this year went under restructuring and its chief executive left the company.

DEUTSCHE BANK

DIFC Investments, a unit of the Dubai international Financial Center, bought a 2.2 percent stake in the German lender in 2007 in a deal worth about $1.83 billion. The DIFC’s governor was last week replaced as part of a shake-up Dubai’s hierarchy.

SONY CORP

Dubai International Capital through its Global Strategic Equities Fund (GSEF) bought a stake in the Japanese electronics and entertainment firm in 2007 in what it described at the time as a substantial investment. Anyone who buys more than 5 percent of a listed company on Tokyo is required to report the stake to regulators within five business days.

EUROPEAN AERONAUTIC Defense & SPACE COMPANY (EADS)

The GSEF also bought into Airbus’ parent company taking a 3.12 percent stake, making it one of the largest institutional investors in the aerospace group.

ALLIANCE MEDICAL

DIC also in 2007 bought Alliance Medical for $1.25 billion with plans to expand one of Europe’s largest MRI and CT scan services provider into the Middle East and Asia.

EMAAR PROPERTIES

The Arab world’s largest property developer by market value is in the midst of a merger with three other state-linked developers after a failed acquisition in the United States and Dubai’s real estate market crashing left it vulnerable. Still, its portfolio includes the world’s tallest tower Burj Dubai, set to open in January, and one of the world’s biggest malls already open."

Sunday Times first to be banned

29 November 2009

The Sunday Times takes the honour of being the first foreign newspaper to have a ban during the current Dubai debt woes.

The Sunday London Times newspaper was removed by authorities from shelves in the United Arab Emirates on Sunday amid intensive reporting of Dubai's debt problems, an executive at the paper said.

The National Media Council ordered the paper blocked by distributors without providing a reason, an executive at the paper in Dubai told Zawya Dow Jones.

The Sunday Times edition available in the U.A.E. on Nov. 29 featured a double-page spread graphic illustrating Dubai's ruler Sheik Mohammed bin Rashid Al Maktoum sinking in a sea of debt. The Times wasn't given a reason for the block, or a timeframe when it will be lifted, the executive said.

A government official in Abu Dhabi, the capital of the U.A.E., said that the picture of Sheik Mohammed, which accompanied a story entitled: The sinking of Dubai's dream, was "offensive."

Under the U.A.E.'s media code, publications are prohibited from criticizing the sheikdom's rulers. Local media and government officials have criticized international press coverage of Dubai's debt crisis. Markets around the world fell last week after the government requested a debt standstill for one of its biggest conglomerates.

The Sunday Times is part of News International, a unit of News Corp., owner of Dow Jones & Co. The Times and The Sunday Times are published in the U.A.E. through a local partner SAB Media.

The irony is that The Times actually publishes a UAE edition, printed in Dubai and carrying local advertising. The Times opened a Dubai bureau in Media City admit some fanfare as the new bureau indicated the increasing significance of Dubai in the Middle East and globally.

Bling City is dead, but the desert dream lives on

29 November 2009 - The Guardian [This is one of the most sensible and balanced articles on Dubai - written under an alias by someone who lives here]

"Dubai World's collapse alarmed investors and was a blow for a ruler who wanted to create an Arab city of global significance. But for all its faults it remains a rare oasis of Middle East moderation and progress

A yachtsman friend of mine was sailing the blue waters of the Persian Gulf off the shimmering coast of Dubai recently when he came across a disturbing phenomenon: The World was dissolving before his eyes.

It was not the grog. Three years ago, when Dubai's debt-fuelled boom was at its height, the emirate launched its most ambitious project yet – a gigantic offshore replica of the planet Earth, made from sand dredged from the deserts and beaches of Arabia, with countries and continents carved out among a man-made archipelago of 300 islands. It was called simply The World.

Like most things in Dubai, it was for sale. Wealthy celebrities with $20m or so of loose change could buy Britain or France or Australia and erect their own secluded fun palace by the sea.

That project is unlikely ever to be completed. Work on it stopped earlier this year when the developer, Nakheel, ran out of money. Deprived of essential maintenance and reinforcement, the islands are slowly slipping back beneath the waves. "They're just blobs of dirty sand sinking back into the sea," said my sailing friend. "It must be the biggest shipping hazard in the Gulf."

It could be a metaphor for what has happened to Dubai. Last week the emirate's carefully crafted image of brash, glitzy modernity dissolved into chaos as Dubai World, the government-owned conglomerate that owns Nakheel, effectively told its bankers and investors that it could not pay its debts.

With some $60bn (£36bn) at stake in loans, bonds and outstanding bills, the news sent shockwaves around the real world. Investors deserted Dubai in droves. The emirate became as "toxic" as Lehman Brothers and spread its contagion around all the Gulf countries, from Abu Dhabi to Kuwait. Some analysts feared it might be the spark for the feared W-shaped, or double-dip, recession, just as the global economy seemed to be recovering from the credit crisis.

The financial experts will pick over the bones of the "Dubai model" for years to explain what has happened, but the basics are simple: with minimal natural resources in an energy-rich region, Dubai decided to go for broke with an ambitious strategy of economic growth designed to turn the Arab fishing village into a global trading metropolis.

It did it with borrowed money, vast quantities of it. The palm-shaped islands, the glamorous beach resorts, the seven-star hotels, a state-of-the-art metro system – all were built on borrowed money. The last published figure was $80bn of debt owed by the government itself and the corporations it owns – like Dubai World. This was around 140% of Dubai's gross domestic product.

Neither I nor any of my friends and colleagues ever felt we were living on borrowed time. Life in the emirate is good – great weather most of the year, cheap cars and petrol, and a touch of high life in the swanky hotels. Affordable domestic help is the norm – armies of Filipina and Sri Lankan maids and Indian drivers and gardeners mean that life for expatriates is free from much of the drudgery of Europe or America.

Property prices were a worry. A three-bedroom villa in a nice part of town – close to the beach and near the arterial highway, Sheikh Zayed Road – would set you back more than £3,000 a month. But salaries were about 50% higher than in Europe – and tax free – so it was affordable. The things I liked best about Dubai were summed up in four words: no tax, valet parking.

This was the expat trade-off in the Great Deal done between the al-Maktoum family, rulers of Dubai since 1833, and the expatriate workforce that keeps the place going. Sheikh Mohammed bin Rashid al-Maktoum, the ruler, guaranteed an environment in which the expats – Europeans, Americans, Asians and Africans – could be well rewarded for hard work and afford to live in the playground of the Gulf; in return we gave him the labour and expertise his own subjects – the privileged Emiratis, who make up fewer than 10% of Dubai's population – were either unwilling or unable to supply. It was a great deal.

The strategy worked until the credit crisis – prompted by a collapse in property prices – threw a spanner in the works of the global financial system. No one wanted to lend any more to Dubai's property-obsessed economy. No one wanted to buy the "iconic high-rise waterside lifestyle developments" that were planned for the bone-dry desert.

Dubai World's announcement was confirmation of what many have suspected for some time, but nobody dared admit – especially Dubai's ruling elite, in denial since the credit crisis began: the emirate is bust, as surely as modern-day Iceland, or Argentina in the 1990s, or Germany in the 1920s. It will not survive in present form without the intervention of outsiders, whether Abu Dhabi, the oil-rich capital of the UAE federation Dubai joined in 1972, or the international banks that are already in it for billions, or the global financial authorities. I have met Mohammed a couple of times, at functions and formal occasions, and heard him speak many times more. As the serving representative of one of the world's longest surviving hereditary monarchies, he certainly held the attention of his largely Emirati audience. You would expect him, as a hereditary autocrat, to command a certain amount of respect, but there was evidence of his legendary "vision", too.

A couple of years ago, he said he wanted to make Dubai "an Arab city of global significance, like Córdoba and Baghdad". He was talking about the two leading urban centres of the Muslim world at the height of the Islamic empire in the 10th century, and that was indeed inspirational, with a grand historical sweep. The Emiratis loved it. I, too, was impressed back then.

A few weeks ago he was speaking in public again, to a group of investors gathered together by an American bank. Unexpectedly, he strayed from his Arabic speech to tell, in English, those who doubted the strength of ties between Abu Dhabi and Dubai to "shut up".

Many in the audience thought it was demeaning for a man of such international stature and reputation to resort to a near-vulgarity. I thought the strain of Dubai's financial problems, and the effect it was having on Dubai's reputation abroad, was beginning to tell on the 62-year-old monarch.

There is no doubt that Dubai has had a bad year, image-wise. Virtually every couple of weeks some western correspondent would pop up in the emirate, announce he was "writing a piece on the dark side of Dubai" and leave after a few days in the sun at a five-star beach resort to launch another attack on the emirate and its residents.

There were interviews with exploited Asian workers in filthy labour camps, hilarious encounters with Ukrainian prostitutes in Dubai nightclubs, and heart-rending accounts of jailed expats or sacked foreigners having to sleep in their 4x4s. For those of us living and working in the country, it almost seemed like they were writing about somewhere else.

There is a "dark side" to Dubai, like there is to any big city anywhere in the world, in every era of history. Labour exploitation is probably the most obvious scandal. Construction workers from India, Pakistan and China are lured to Dubai with the promise of wages big enough for them to give their families a better life back home, only to have their passports confiscated on arrival as they are hit with huge "fees" for their travel and accommodation. The conditions they live in are primitive compared to the rest of the city and the west (though probably not those of their home countries).

The government blames it on unscrupulous middlemen, and promises to take action with each new report. For what it's worth, it does seem to be getting better. I, like most expats, have largely ignored it or – when I wanted to salve my conscience – gave a bigger tip to the Asian waiter or Indian taxi driver, and affirmed self-righteously that conditions were surely worse for the Irish navvies who built Victorian London or the Chinese coolies who laid the American railroads. It was the price of "diversification away from an oil-dependent economy", I'd tell myself.

Prostitution is rife, too, mainly women from the former Soviet countries or China, but fairly self-contained in well-known bars and districts. It depends on your attitude to prostitution, I guess. For many visitors, it adds a frisson to the city, and guarantees that the conference and exhibition trade continues to attract sybaritic high-rolling businessmen from the west. Along with the ready availability of alcohol, it means Dubai will always have a unique marketing advantage compared with Riyadh, or Doha, or even Abu Dhabi. It is maybe a bit worse than the red-light districts of any European or American city. I take the view that if you didn't want, you wouldn't go.

If only the western correspondents who spent so many hours in desert labour camps or Russian cat-houses would take just a couple of hours on a Friday afternoon to visit Safa Park, Dubai's equivalent of Hyde Park or Hampstead Heath, sprawling between the beach villas of Jumeirah and the slums of Satwa, with the needle spire of Burj Dubai, the world's tallest building, in the background.

There, Arab families spread their picnic lunches on the lawn, ladies in abayas and men in dishdashas; Indian groups play football and light barbecues; Filipino couples stroll by the fountains, wheeling pushchairs; westerners lounge in the sun just chilling, maybe taking an occasional swig from a (theoretically) illicit can of beer.

It is a pastoral vision of social, cultural and racial integration that would surely soften the heart of even the most sceptical foreign correspondent. A place like Safa, after lunchtime prayers at the mosque, is what makes Dubai a special place in the Middle East, and which needs to be rescued from the financial wreckage.

Dubai leads the Arabian peninsula in this respect. Christian churches and Hindu temples lie a couple of blocks away from an imposing mosque. There is a synagogue discreetly hidden among the big villas of Jumeirah, built to accommodate an American Jewish banker who would only relocate to Dubai on condition that he could practise his religion. (Mohammed gave his personal assent for construction, apparently).

Dubai is not just a social and cultural melting pot. It's also a major commercial hub at the heart of a strategically vital region. The US fleet loads up at Jebel Ali port – owned by Dubai World – before it moves its cargoes on to Iraq and Afghanistan. The Iranians, who have been cross-fertilising with this part of Arabia for centuries, use Dubai as a social and financial pressure valve. During the recent contested elections in Iran, the biggest demonstrations outside Tehran were in Dubai.

Saudi Arabia, the biggest economic power in the region, uses Dubai as its entrepôt to the wider financial world, and as an escape from the cloying Islamic orthodoxy of the kingdom. You can see young Saudis in bars and nightclubs most weekends, drinking bottles of Johnny Walker Blue Label ("Saudi Coke") and trying to chat up Uzbeki ladies in broken English.

Despite all its flaws, Dubai is as close as the Middle East gets to the Islamic concept of "harem" – a place of peace and reconciliation where conflicts and arguments can be forgotten, and disputes resolved in a spirit of mutual understanding.

How the emirate resolves the current dispute with its international creditors will determine whether it remains the best hope the Middle East has or reverts to some kind of Islamic isolationism. The fear among expats – and Dubai Emiratis – is that, if Abu Dhabi bails out Dubai, it will exact a high price for its financial lifeblood. It may seek control of crown jewels like the Emirates airline or the DP World ports business, or to take over the Dubai International Financial Centre, the region's closest equivalent to the City of London and Wall Street.

Or it may impose stricter Islamic standards on acceptable public behaviour, like forcing women to wear an abaya in public. Despite the occasional furore over a bit of beach bonking, women in Dubai are still the most liberated in the Arab world.

If, on the other hand, Dubai can reach a deal with the banks and bondholders, it may have to sell or cede control of those same assets to westerners, which would open it up to further accusations of un-Islamic, anti-Arab behaviour from its neighbours.

The events of last week – and the repercussions that will roll on for the coming six months as Dubai tries to get its finances back on the straight and narrow – will have a permanent impact on the emirate. It cannot be Bling City any more, and Mohammed's plans to rival Córdoba and Baghdad will probably have to be shelved for a couple of centuries.

At a posh Thanksgiving dinner party last week, the day after the Dubai World news broke, I counted 10 nationalities among 15 guests.

Americans, Europeans, Arabs and Asians, we were all agreed that things could never be the same again in the emirate, and fearful for the future. But equally we were all united in the hope that Dubai's unique economic, cultural and social experiment should be allowed to continue."

What happens next?

28 November 2009

The Dubai economy has been built on three key platforms:
 
1. Financial services
2. Real estate
3. Tourism

This week's announcement has done significant damage to 1. and 2. The real estate sector had been picking up. That is over now. Do not be surprised if prices drop by another 20% from current levels.

As for financial services there is now a significant credibility problem. If you wanted to restructure your bonds it is your right but it should not be done 2 weeks before you are meant to pay the bond/sukuk, on the eve of a holiday and with no plan.

Foreign investors will be concerned at the lack of comfort from Abu Dhabi. Unofficially the Abu Dhabi line is that they will bail out on a selective basis the state-owned Dubai World, whose debt default led to a sharp drop in global markets.

An unnamed official told news agencies on Saturday that the United Arab Emirates' wealthy capital would "pick and choose" how to assist its debt-laden neighbour.

At some stage the rulers of Dubai and Abu Dhabi will be locked in negotiations regarding the exact terms that will be attached to a “bailout” for Dubai World.

The details are unlikely to be known. But assume that creditors will be expected to take some sort of hit (perhaps getting 75 cents in the dollar, at the end of the day). It is like a US corporation declaring Chapter 11 protection in order to effect a reorganisation and there really is little that creditors can do.

Dubai probably has around $100bn in total liabilities including off-balance sheet transactions. Total credit losses could be say  $20 to $30bn. The direct effects so far seem small. HSBC leads the pack, in terms of exposure, but any loss while not good is manageable and has already been priced into HSBC stock by the market.

The impact among other financial institutions that lent to Dubai seems fairly spread out and mostly within continental Europe.

But what if Dubai can effectively default or reschedule its debts without disrupting the global economy, then will others can do the same.

If Abu Dhabi takes a tough line and doesn’t destabilize markets, others (e.g., the EU) will be tempted to do the same (i.e., for Ireland and Greece).

The longer term lesson - one which maybe is never learned - is that financial intermediaries should be more careful about extending credit to places that are becoming overexuberant – even when it is cheap to increase debt levels.

But it wont happen - and boom will end in bust and we will start all over again; the only question is where?
In the short term the lack of details on how Dubai plans to pay off its 80-billion-dollar debt mountain will hit Gulf stock markets sharply this week.

The Kuwait and Qatar bourses resume trade on Tuesday, Bahrain on Wednesday and Saudi Arabia on December 5.

It does look as though Abu Dhabi has said that it is necessary for Dubai to go through this restructuring, to sort out the good assets from the bad.

The unknown at the moment is whether the request to re-schedule debt will succeed or lead to default, what other Dubai-based entities could suffer a similar fate, whether it could prove more widely contagious and which banks globally are most exposed.

Abu Dhabi expected to prop up smaller brother

Financial Times - 27 November 2009

"Since the full scale of Dubai’s huge debt mountain hit home late last year, many investors who have sunk billions of dollars into the emirate’s extravagant projects have been turning their heads to the UAE’s capital for reassurance.

For years, as Dubai built one grandiose scheme after another there was the assumption – unwritten but widely believed – that Abu Dhabi would be on hand to pick up the pieces if the emirate’s bubble burst.

But with Dubai raising the possibility that one of its flagship entities may default, attention is now focusing on just how far Abu Dhabi is willing to go to bail out its smaller brother. Underlying the uncertainty, it is thought that Abu Dhabi officials were caught unaware by Dubai World’s dramatic statement, which came just hours after two Abu Dhabi-controlled banks had agreed to subscribe to a $5bn Dubai bond.

Seasoned Gulf-watchers point out that the affair is a wake-up call to investors who expected Abu Dhabi to write a blank cheque for Dubai, saying they failed to understand the complex dynamics of the relationship between the UAE’s two largest and often competing emirates.

One UAE-based banker said he received phone calls from senior Abu Dhabi officials seeking information about Dubai World’s request for a standstill with creditors. Since then, there are reported to have been discussions between the two city states as markets around the world tumbled and the UAE’s reputation has been put through the shredder. Speculation is now rising that Abu Dhabi will be forced to take action.

“It’s one country but not one set of people – it’s two sets of people kind of cohabitating,” says a UAE-based banker. “It shows the federal mechanism is not working fluidly in terms of communicating messages, but who ever thought it did?”

While Dubai has grabbed the headlines, Abu Dhabi is the undisputed financial heavyweight. Yet all the UAE’s seven emirates enjoy – and pride themselves on – a large degree of autonomy, while Abu Dhabi has no legal liability to support its poorer neighbours.

Since the economic crisis struck, Abu Dhabi officials have repeatedly talked up the strength of the union and insisted they would not allow another member of the family to fall.

Bankers also say that it would damage Abu Dhabi if Dubai – just a 1½ hour drive from the capital – imploded, particularly given the exposure of Abu Dhabi entities, investors and banks to Dubai. Abu Dhabi officials have previously said support for Dubai would be forthcoming if needed. But it has also been clear that the capital would not simply pour money into Dubai without scrutiny, particularly for developments it considered white elephants.

The question many have raised is what price would Abu Dhabi put on its support? Would it require equity stakes in the better-run Dubai entities? Would it use its financial clout to rein in Dubai to ensure the excesses were not repeated? Would Abu Dhabi’s hawkish leaders seek to persuade Dubai to curb some of its economic ties to Iran?

Dubai also knows there are more straightforward costs – loss of face and a weakening of its independence.

In February, the UAE central bank subscribed to the first $10bn of Dubai’s $20bn bond programme after weeks of speculation. That provided the veneer of federal support, but the central bank is dependent on Abu Dhabi’s riches.

Many assumed that the central bank – backed by Abu Dhabi – would be on hand for the next $10bn tranche.

One UAE-based banker with knowledge of the process said Abu Dhabi entities were evaluating Dubai assets in the summer, with some officials arguing that the support would need to take the form of a mortgage.

Ultimately, though, there is consensus that Abu Dhabi will not see it fail."

Down but not out

27 November 2009

I have been thinking about silver linings. And in some ways a night out in Dubai yesterday was reassuring. A year ago the Jumeirah Beach Walk did not exist.

Last night it was a heaving mass of people. They go there for the long promenade walk with restaurants, shops, cafes that pour out onto the paved sidewalks.

Sure it was a holiday. But it is like this every weekend.

There are two new hotels there ready to open including a new Sofitel. The beachside Hilton is there already.

And earlier today the malls were packed and the roads full as people took advantage of the long holiday and the special holiday sales.

There is a huge amount of told you so about Dubai's financial mess. There is little doubt that the city grew too quickly. That greed took over from regulation. That short term gains mattered more than long term sustainability.

Brand Dubai went global as well investing in assets as diverse as the Cape Town's Waterfront, Barney's clothing store in New York and the MGM Grand Casino in Las Vegas.

Sure there are some people enjoying Dubai's malaise. But it is also true that Dubai has managed something of a miracle in a region beset by violence and social disintegration.

Dubai's bold growth comes from engaging the world - and in particular the West - through the development of tourism and promotion of the City as a global player alongside London, New York and Paris.

Dubai sought to be an example in the Arab world, exposing the region to outside influences (and some of its vices) and creating a welcoming environment for business and leisure.

The vision must have created an impression across Arabia as it has largely been copied by Abu Dhabi, Qatar and even conservative Saudi Arabia albeit on a more modest (and wiser) scale.

But great vision also requires execution and effective management. There was no transparency and public scrutiny. No effective corporate governance. It was a greed drive free-for-all.

Dubai's model is built around importing demand and services from the rest of the world. There is the smallest of domestic markets. With no domestic demand, every sector of the economy had to be imported - from media conglomerates to services. The the financial crisis hit a year ago and as the world contracted, so did Dubai.

But what Dubai started, others will continue to copy. Going first can be a disadvantage.  Watch Abu Dhabi, driven by more conservative growth and with the safety net of massive oil deposits.

The holiday and a feeble media mean that many questions remain unanswered. Keeping investors informed and having international finance privy to problems was the only way to mitigate the fall-out from the present position.

Yet there are towers full of international PR companies in Dubai who could have helped. But the instinct of the authorities was not to trust foreigners to manage their news. Strange.

Dubai might be down - but it's certainly not out. A powerful Arab nation integrated with the rest of the world acting as a financial and cultural hub is unlikely to be allowed to fail by either the UAE authorities or the western lenders and governments. But there is a great deal of work to do to restore credibility and confidence.

Parallel universes

27 November 2009

It is like being in a parallel universe.

Readers of the Gulf News will read today that "Investors show trust in Dubai."

But here is the Financial Times take on the Dubai crisis:

Crisis in Dubai

Fall out continues

27 November 2009

The UAE press - see below - may be in denial - but the fall out from Dubai's debt deferral announcement continues this morning:

Banking stocks across Asia are lower today, especially those traded in Hong Kong and Australia, amid concerns over the extent of exposure lenders may have to financial troubles in Dubai.

In Hong Kong, shares of banking giant HSBC Holdings were knocked 6.1% lower by midday, while Standard Chartered Plc's stock sank 5.8%. HSBC has about $15.9 billion in loans to the UAE, while Standard Chartered has $12.3 billion, according to the Financial Times, which cited research by Goldman Sachs.

In Sydney, shares of Australia & New Zealand Banking were down 3.1%, while Commonwealth Bank of Australia fell 3.1%.

Chinese banks are not believed to have much, if any, exposure to Dubai. Japanese banks were also lower, although the downside was muted compared to elsewhere in the region.

Chinese construction companies may, however, be exposed. In Japan today shares of building companies fell on concern may lose revenue from Dubai. Obayashi Corp. fell 11 percent to 276 yen, while Kajima Corp., Japan’s biggest listed construction company, slid 9 percent to 172 yen. The companies may lose “tens of billions of yen” should they fail to receive revenue from their projects, Hiroki Kawashima, an analyst at Daiwa Securities Group Inc., said in a Japanese-language report today.

“If Dubai has to default, that could start a wave of defaults in other areas,” Mark Mobius, Chairman of Templeton Asset Management Ltd. said in an interview on Bloomberg Television from Hanoi. “This may be the trigger to allow for the market to take a rest and pull back.”

There are already rumbles of debt problems in Greece and Ireland. Remember that 12 years ago it was the Thai crisis that started a contagion across Asia.

Editorial opinion depends on where the writer resides - the Financial Times takes a very different approach to the Gulf News and the National newspaper - see the three following articles.

A breathtaking blunder in Dubai

November 26 2009 - Financial Times

"Of all the glitzy emirates on the western shore of the Gulf, Dubai is easily the brashest. With the grenade it has just lobbed into the capital markets by calling for a six-month creditor standstill for its flagship Dubai World holding company, it is effortlessly living down to that reputation.

Dubai’s action looks like either a serious misjudgment or, more likely, a breathtaking cock-up.

Either way, it leaves a trail of unanswered questions that has done real damage to its reputation – and to its vaulting ambition to emerge as the region’s financial centre and trading hub, the Singapore and Hong Kong of the Gulf. Today, Dubai is looking more like Argentina, but less predictable – its behaviour is genuinely baffling.

The ruler of Dubai, Sheikh Mohammed bin Rashid al-Maktoum, has spent much of this year trying to put his house in order.

The breakneck growth of his city-state, built on cheap foreign money and plentiful foreign labour and expertise, was brought to a juddering halt by the credit crunch and the subsequent recession.

Dubai had borrowed heavily to build up a non-oil economy based on property, trade and tourism, building up a stock of debt estimated at $80bn, comfortably in excess of national income – although neither its total liabilities nor gross domestic product are known for sure. The sheer size and exuberance of its property boom was always unsustainable. Dubai doubled in size and house prices almost quadrupled in 2002-07, since when property prices have halved. As a trade and tourism hub it was hit by the international downturn just as it was building critical mass as a regional financial centre.

Sheikh Mohammed reacted by borrowing heavily from oil-rich sister emirate Abu Dhabi, centralising power in his court, and sidelining the principal lieutenants who had built modern Dubai on his instructions and in his image.

Last week, he removed Sultan Ahmed bin Sulayem, chairman of Dubai World, Mohammed Ali Alabbar, chairman of Emaar – the property company behind the giant Burj Dubai skyscraper – and Mohammed al-Gergawi, chairman of Dubai Holding, from the board of the Investment Corporation of Dubai, the emirate’s mega-holding company. He also fired Omar bin Sulaiman, head of Dubai International Financial Centre. Instead of these Ivy League-educated whiz kids, he has fallen back on his family, the court and the traditional merchant class. This was a real palace revolution. Although, like everything else in Dubai, it was unexplained, it was interpreted as recognition that the emirate had over-borrowed and over-reached.

Yet, it is not obvious that the way to re-establish credibility with the markets is to follow this up with a runic message on deferring debt repayments – and then disappear on a four-day public holiday.

Why Dubai World felt the need to defer repayment of a $3.5bn Islamic bond of its Nakheel property subsidiary is also a puzzle.

Abu Dhabi stumped up $10bn in February; two of its banks bought $5bn in Dubai paper on Wednesday; a $1.9bn bond issue was three times subscribed three weeks ago; and Dubai is planning to return to the market next month for a further $1.25bn. It has the money to meet its obligations – unless its debts are significantly greater than stated. Until now, moreover, there has never been any doubt that Abu Dhabi – senior partner and censorious older brother in the federal United Arab Emirates, owner of the largest sovereign wealth fund in the world (worth perhaps $900bn), and sitting on one tenth of the world’s oil deposits – would stand behind Dubai. Dubai World’s biggest creditors, furthermore, are down the road in Abu Dhabi.

Yet, the Abu Dhabi authorities appear to have had no inkling Dubai was going to spring this surprise, which is already having devastating results. The cost of protecting Dubai’s paper against default has quadrupled – putting the emirate in the same league as Iceland – and the credit ratings of its leading companies have been downgraded. Yet the fallout in raising the cost of insuring sovereign debt has spread not only across the Gulf but throughout emerging markets. This is a mess.

Something here does not add up. Why would Dubai risk such damage to its reputation when the recovery of its still viable entrepôt model depends on the confidence of the capital markets? One possible explanation is that its intention was to defer payments to suppliers and contractors (common practice in the Gulf) but not bondholders. It has made blunders before; it needs quickly to clarify whether this is one of them."

Dubai bonds issue reflects transparency

Gulf News Editorial - 27 November 2009

"It proves the success of the UAE as the step was taken cooperatively and jointly

When it comes to the state of the economy in Dubai, matters should be put within their right context. There is no need for exaggeration or underestimation of the current situation. Dubai could not be more transparent and open about the challenges it is facing due to the global economic downturn as it has been.

The Government of Dubai has announced that it raised a further $5 billion (billion) in bonds which is part of the long-term $20 billion bond programme launched earlier this year. The $5 billion was subscribed in full by the National Bank of Abu Dhabi (NBAD) and Al Hilal Bank.

There is no doubt whatsoever that the manner in which the government is handling the matter is indicative of its strategy towards dealing with the issue. The announcement of the recent bond issuance was made in full transparency, with the involvement of two major Abu Dhabi banks as well as the UAE Central Bank's knowledge of it.

Yet the government's recent announcement should not be over-interpreted, over-analysed or over-read. Common sense and logic should prevail when examining the recent move. There is no secret, no hidden agenda, no closed doors dealings, no unannounced decisions or undisclosed agreements or trade offs. Assets are not being sold off partially or fully, and none of the major projects were given away. The maliciously insinuating rumours should be put to rest — once and for all.

The bond programme in fact could only be seen as something that is positive. It reflects Dubai's systematic approach towards orderly and tactful restructuring. It also indicates a trust in the emirate's ability to withstand the challenges.

Yet most important of all, it shows the success of the UAE as the recent step was taken cooperatively and jointly."

A silver lining in Dubai World

26 November 2009 - The National Newspaper (Abu Dhabi) editorial

"At first sight, Dubai World’s call for a “debt standstill” looks like a step in the wrong direction. Having spent the past few months attempting to provide reassurance to investors, the company’s request on Wednesday for a debt holiday shocked markets around the world.

But as the dust settles, the realisation will sink in that this surprising announcement is in fact a move in the right direction. The first step in solving a problem is acknowledging there is one. Dubai World, a conglomerate whose proud motto is that the “sun never sets on Dubai World”, expanded in many areas and came to represent many ambitions. And like everyone from Florida to Iceland, it was buoyed by borrowing. The appointment of Aidan Birkett, an experienced chief restructuring officer, will help. He has assisted companies as diverse as Eurotunnel, Cable & Wireless and even the labyrinthine empire of Robert Maxwell, the Czech-born British publishing tycoon.

We should recall that it was only on June 1 that General Motors, itself once the crown jewel of American industry, sought protection from its creditors. Many feared that the firm, whose chief executive once boasted that “what is good for General Motors is good for America”, would cease making cars altogether. It emerged anew in July, streamlined and firing on all cylinders.

Something similar will happen at Dubai World. But nobody should expect a quick turnaround. Confidence is a fragile commodity, while Dubai’s property market will need time to return to its old vigour. Still, the city continues to boast of a first-class infrastructure, with a thriving financial centre and a Metro that snakes through the city. It remains a highly desirable place to live and do business. Now that it has admitted to its debt dilemma, it can begin to resolve its problems."

Dubai gives holiday shocker to financial markets

26 November 2009

[Breaking news - late night - A senior Dubai government official, Sheikh Ahmed bin Saeed al-Maktoum, chairman of Dubai's Supreme Fiscal Committee, said he understood the concerns in the markets, but that "decisive action" was needed to address Dubai World's debt problem. Note that the Sheikh is also President of the Dubai Civil Aviation Authority, Chairman and Chief Executive of Emirates Airline and Group.]

Timing is everything and this is bad. Until yesterday the financial markets expected Nakheel (part of government owned Dubai World) to redeem its Islamic bond when it matures in two weeks.

Recent comments from Dubai government VIPs reinforced the expectation that debts would be paid on time.

But yesterday Dubai World announced that it is asking creditors to defer payment for at least six months.

The significance of this bond is that it is the world's largest Islamic financial instrument and has been long considered as a benchmark of Dubai's ability to meet its commitments.

The markets will also be unimpressed by the timing of the announcement which was made after the close of the local stock market on the eve of the Eid holiday. Most offices are now closed until December 6th. So for the next week there will be neither comment or clarification. Globally there are questions whether the request for a delay amounts to a repayment default.

The effects of this announcement are global: the dollar has risen in Europe driven both by fear of a debt default by Dubai World as well as talk of intervention by the Bank of Japan and suspected intervention by the Swiss National Bank. The FTSE also struggled after the Dubai announcement; shares in London Stock Exchange Group (LSE) were under pressure today amid fears that the state-owned Borse Dubai could sell its 22 per cent stake in the FTSE 100 company.

The situation in Dubai also weighed on the banking sector across Europe. BNP Paribas (BNPP.PA), Banco Santander (SAN.MC), Barclays (BARC.L), Credit Suisse (CSGN.VX), Deutsche Bank (DBKGn.DE), HSBC (HSBA.L), and UniCredit (CRDI.MI) were down between 2.7 and 4.6 percent. European banks face potential losses on an estimated $40 billion in exposure to Dubai. Property shares also fell on the Dubai worries: Britain's recovering commercial real estate market could be scuppered if the Dubai government was forced to hold a firesale of its international real estate.

The FTSE had its biggest daily fall since March 2009 based largely on fears over Dubai's financial security.

Even in Chile stocks ended 2.2% lower on dubai debt restructuring news.

The US markets are closed for thanksgiving but in Toronto the TSX is down sharply on Dubai World debt repayments.

In one of the first signs that Dubai's problems could hurt global fund-raising efforts for its neighbors, Saudi-backed Gulf International Bank pulled a bond sale due to priced this week.

Dubai's move will likely lead to a reassessment of the riskiness of debt issued by the region's sovereign-linked firms.

This is all about credibility; it is the right things to do; a restructuring of corporate Dubai is long overdue; but investors had been reassured by local officials for months that the city would meet all obligations on its $80bn (£48bn) of gross debt in spite of recession and a real estate crash.

The local newspapers are all trumpeting an announcement that Dubai had raised $5bn from two Abu Dhabi banks. The $5bn was only half the amount expected and it was poor to see it trumpeted as good news in the local media.

Earlier this month Sheikh Mohammed bin Rashid al Maktoum, the Ruler of Dubai, told an investor conference that "the second tranche of the bond programme will be well received and it will be used to meet current and future obligations."

But two hours later the Department of Finance announced that is is asking for a standstill until May 30 on all financing to the heavily indebted Dubai World and its troubled property unit Nakheel, which is due to pay back $4bn on an Islamic bond on December 14.

As part of the requested deferral Dubai also announced a restructuring of the government holding company, which oversees ports operator DP World, the UK-based P&O Ferries and troubled investment company Istithmar.

A spokeswoman for the department of finance said the government intended to ask all bondholders to extend until May. But the government said no decision had yet been made on how to deal with investors insisting on repayment in December.

Bond markets reacted sharply to the news. Standard & Poor's and Moody's Investors Service yesterday downgraded the ratings of all six government-related issuers in Dubai following news of the repayment delay.

Looking for a possible explanation it just maybe that the debt standstill is a trial balloon floated to gauge investor reaction to a voluntary restructuring of Dubai World’s debts. But if that is the case the announcement should not have been on the eve of the UAE's longest holiday.

The confusion ahead of a four-day holiday is such that some conspiracy theorists even believe the move was somehow foisted on Dubai by Abu Dhabi, tightening the purse-strings on upstart Dubai.

The timing really could not be worse; there was a sense of returning optimism as hotels filled up, business confidence rose and a feared expatriate exodus failed to materialise.

And why the need to defer payment. In February Dubai raised $10bn in bonds from the UAE central bank in the first half of its $20bn sovereign bond programme in an effective bail-out from the oil-rich capital. The yesterday, Dubai raised $5bn of the second $10bn tranche from National Bank of Abu Dhabi and Al Hilal Bank, two institutions with strong Abu Dhabi government holdings.

Dubai's department of finance managed to raise almost $2bn in Islamic bonds last month in a move that had also shored up confidence.

It is unclear whether the Nakheel sukuk (due in December) restructuring process will be voluntary, which would give creditors the option to extend, or involuntary, which would force bondholders to extend and trigger a default and potential legal action against the government.

The restructuring announcement leaves many open questions. If creditors have no choice but to extend, then this will constitute a default. Clearly the government has to clarify these issues.

Dubai World has also appointed global accountancy group Deloitte to help with its financial restructuring. Again this should have happened many months ago. Not days before the first major repayment is due.

Deloitte restructuring veteran Aidan Birkett will be spending plenty of time in Dubai now that he has been appointed chief restructuring officer to Dubai World.

Mr Birkett, who remains managing director of Deloitte's corporate finance, has spent 25 years in corporate finance, advising on business turnarounds and restructurings including MyTravel, Metronet and Gate Gourmet.

In the short term what can Dubai do? A review of the tax regime is likely but will not provide immediate cash inflows. But the Dubai government could be forced to hold a firesale of its international real estate if creditors to two of its flagship companies reject proposals to defer near-term debt obligations until May 2010.

Dubai's international assets comprise landmarks such as the Grand Buildings close to London's Trafalgar Square, the Mandarin Oriental hotel in New York and the Victoria & Albert Waterfront complex in Cape Town, South Africa.

Another option to raise cash - is to hasten the public listing of cash making assets - such as Emirates Airline.

There was also an expectation in the local financial markets that, in the end, the federal government in Abu Dhabi would stand by all of Dubai's bad bets. Last night's announcement indicates that Abu Dhabi is not planning to meet Dubai's debts.

REUTERS Q and A

Dubai, the member of the United Arab Emirates federation in deep financial straits, is struggling to meet debt obligations of up to $80 billion.

On Wednesday, the government said it will ask creditors of its flagship firms Dubai World and property group Nakheel for a debt standstill as it restructures the Dubai World group.

WHO RUNS DUBAI?

Each of the seven emirates is run by its own ruling family, many of whose members have substantial business interests. Dubai is ruled by the Al Maktoum family. The line between personal property of rulers and Dubai "state" ownership is blurred.

WHAT ARE DUBAI'S MAIN COMPANIES?

Dubai government owns three major corporate entities, Dubai Holding, run by Mohammed Al Gergawi; Dubai World, run by Sultan bin Sulayem; and the Investment Corporation of Dubai (ICD).

Last week Dubai's ruler reshuffled the board of ICD, which manages his wealth, bringing in two of his sons as directors and removing Gergawi and Mohamed Alabbar, chief of Emaar Properties.

WHICH MAJOR FIRMS DO THEY OWN?

Dubai World, Sheikh Mohammed bi Rashid al-Maktoum's investment vehicle, includes shipping giant DP World and developer Nakheel, which is behind the famous man-made palm-shaped islands which came to define Dubai in the minds of many around the world during the boom years.

Dubai Holding includes property developers Sama Dubai, Dubai Properties and Tatweer, which are all being merged with Alabbar's Emaar -- part of ICD. ICD also includes key entities involved in running the emirate, such as the Dubai Electricity & Water Authority and the Road and Transport Authority, as well as Dubai Aluminum (Dubal) and the flagship airline group Emirates.

DUBAI WORLD CAN'T MEET DEBT OBLIGATIONS?

Most of Dubai's debts, which have been exposed by the financial crisis, have arisen through Dubai World. Wednesday's announcement came about because the conglomerate wanted to delay repayment of a $3.5 billion sukuk bond due on December 14.

WHAT HAS ABU DHABI DONE?

Abu Dhabi, ruled by the Al Nahayan family, has not stepped in to directly bail out Dubai, which would carry direct political implications for Dubai's freedom of maneuver as a maverick member of the UAE. Dubai, for example, maintains wide trade links with Iran despite ongoing tensions between the UAE and the Islamic Republic over a territorial row and Iran's nuclear plans. A more influential Abu Duabi might want to curb such ties. The federal central bank, based in Abu Dhabi, has bought $10 billion from a $20 billion bond program announced by the Dubai government earlier this year. On Wednesday two Abu Dhabi banks bought another $5 billion worth of the bonds.

WHAT ABOUT ABU DHABI'S FINANCES?

Abu Dhabi is where most of the UAE's oil is located. The UAE, with a population of less than 5 million, is the world's third largest oil exporter and has the world's largest sovereign wealth fund, the Abu Dhabi Investment Authority. Its assets are thought to be worth around $500-$700 billion.

Times: "Burj Dubai is a thumping symbol for our latest age of excess, dramatically out of kilter with ecologically anxious times."

Khaleej Times: "Envy, jealousy and pure venom cannot kill an idea like Dubai. It will outlive its bitchy critics."

The Economist: "even if Nakheel’s creditors were to win in an English court, the judgment would be re-examined in Dubai. And even if the English ruling were upheld, the creditors could not necessarily seize anything that counted as government property, which includes most of Dubai World’s domestic assets. Thus creditors face the worst of both worlds: their claim has no sovereign guarantee, explicit or implicit, and any assets they might seize probably enjoy sovereign immunity, unless the government chooses to forgo it."

US Executive: "It's a bowl of spaghetti in terms of their corporate structure," says a top U.S. executive with extensive dealings in the region. "There are so many different companies and companies within companies."

Sheikh Mohammed bin Rashid Al Maktoum: “We are strong and persistent," Sheikh Mohammed told reporters in Dubai. "It is the fruit-bearing tree that becomes the target of [stone] throwers."

“[on Dubai World] this company is independent of the government. This exaggerated media uproar will not affect our determination."

"It is only natural that we should oppose this campaign and this huge media uproar."

The Economist: "In an autocratic regime like Dubai, bad news acquires an extra coating of sugar with each step it takes up the hierarchy."

LEX in the FT: "why the panic? There are sensible explanations. The first is that after a too-quick-to-be-true recovery from the biggest meltdown for generations, Dubai is a reminder the world is not out of the woods. A large default in some faraway land reinforces the sense that another shock can come from anywhere. Second, the news is slapping investors out of their silly belief that emerging markets deserve risk premiums barely above developed ones. Finally, Dubai is a warning not to assume investments are always state-guaranteed, even in this age of government largesse."

Farouk Soussa, head of Middle East government ratings at Standard & Poor’s in Dubai: “I think the damage could have been contained earlier, with more open communication, with more constant communication.”

Philipp Lotter, vice-president of Moody’s Investors Service in Dubai: “The times of implicit support are clearly over. In the past entities such as Dubai World certainly represented themselves as quasi-government entities, whereas there was no legal obligation on behalf of the government to support, and that has certainly shifted with last week’s announcement.”

Abdulrahman al-Saleh, director general of Dubai's department of finance: "Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct."

Charlie Booker in the Guardian (this is another ridiculous article)

In the cold light of 2009, Dubai resembles a mystical Oz that was somehow accidentally wished into existence during an insane decade-long drugs bender. Those psychedelic structures, pictured in a fever by the mad and privileged, physically constructed by the poor and exploited, now look downright embarrassing, like a Facebook photo of a drunken mistake, as though someone somewhere is going to wake up and groan, "Oh my head . . . what did I do last night? Huh? I bankrolled a $200bn hotel in the shape of a croissant? I shipped the workers in from India and paid them how little? Oh man! The shame. What was I thinking?"

Comment in response to Rod Liddle in the Times:

"Let the cliches flow...the 'sand castles', the 'flies' the 'bling' the 'excess' the 'exploitation' the blah blah blah!!

Funny, as we contemplate an elegant breakfast beneath warm, clear blue skies.

I wonder, do we really miss Britain's gritty, crime infested sordid little high streets?

Do we really miss our kids sharing their education with knife wielding, drug dealing thugs?

Do we truly hanker to witness urination in shop door ways?

Britain's nocturnal delight: prisoners in our own homes? The disrespect, the filth, the danger that is an implicit part of living in Britain?

The list goes on and on and on and on. Yes, Dubai has problems, yes, there is exploitation - and, yes, it is, like Vietnamese trainers and Chinese electronics, shameful.

Yet, Dubai is far more than you describe. Unlike Britain, it is very safe here, it is also immaculately clean, efficient and tolerant.

Women are safer here then ever they would be in the UK. 'Bling'? Nonsense. I live here. Bling exists everywhere, it does here - it exists in Chav Central UK! Dubai Bling is a cliche, it is a myth. Next time you visit [if you have actually ever been here] I suggest you drag yourself away from the hooker bar, and take a ride on Dubai's state-of the-art metro, check out Dubai World Central and Jebel Ali Port, witness the huge investment in infrastructure.

True, there is much to criticize about Dubai, [decent pay and living conditions for workers, and rights to citizenship would be a major steps forward], but there is certainly much to admire."

Times:

"British banks and investors that have poured many millions into funding the Dubai dream now face an uncertain future over how much of their money could be lost."

Independent:

"As one fine source – Independent readers must take on trust how high up the ladder he is, but he should have known of this announcement and didn't – said privately last night: "It came as a shock and a surprise to everybody, not only to me but to anyone I know. All the information I had till yesterday was that everything was in hand. We had the finding for everything coming due this year – there was the $10 billion [£6 million] issued back in February and then nearly $8 billion over the past month – the money's there."

Financial Times:

"It is understood that there were long discussions between Dubai and federal officials over the weekend and it is expected that the federal authorities, most likely though the central bank, will issue a statement in a bid to allay investors fears before the UAE’s banks and markets open on Monday."

The Economist:

"Unlike Abu Dhabi, Dubai has to borrow to finance its future. As the recovery takes hold, it will make money again from its property, tourism, trade and financial industries. One banker describes the emirate as an “integrated service industry, no different from a very large Euro Disney”. Such an industry can and should carry a certain amount of debt. But it has to learn how to pay for that debt from serving customers, not speculators."

Wall Street Journal

"For Dubai to now claim it had anticipated the market reaction to its "sensible business decision" is preposterous. Dubai stands accused of irresponsibility, incompetence and bad faith. Few will trust now anything it says."
 

Financial Times - 27 November 2009:

"To be fair, Dubai’s plans to restructure its companies and put resources in the most viable assets might be sound. But given that details of any strategy are treated like a national secret, and that decision-making is wrapped up in palace intrigue, the city and now the rest of the world are left to operate on rumours and speculation rather than facts."

 

Links

Links to the international media follow: most recent is at the top.

FT: Creditors put Dubai World debt up for sale

Gulf News: Victim of a rabid media campaign

FT: Dubai’s restructuring continues to reverberate

The National: Dubai serves up a debt dish bankers have to consume

Reuters: Dubai fiasco: game of chicken or palace intrigue?

FT: Emaar blocks Dubai Holding merger

Khaleej Times: A Dream called Dubai (the local media fights back)

Times: Confidence will never return to Dubai (this article was blacked out in the local Dubai edition)

WSJ: Dubai Holding, Emaar Cancel Property Merger

Times: Dubai cheaper than Doncaster as room rates tumble

Bloomberg: Nakheel Creditors Could Seize Dubai Waterfront Land in Default

The Independent: Does the sun still shine on Dubai?

Times: Dubai keeps its head in the sand

Dawn.com: Dubai must build up finance and tourism: analysts

Guardian: Creditors to refuse restructuring

Guardian: Dubai: Business as Usual

Reuters: Dubai's Sheikh Mohammed: under fire but unperturbed

Business Week: Dubai's crazy quilt of assets

FT: Stopped in its tracks

BBC: Why Dubai matters to the world

Guardian: Dubai creditors fight for their money

FT: Dubai ruler hits out at crisis reaction

Guardian: Donald Trump's new-found scepticism about Dubai (note - guess there wont be a Trump Tower in Dubai now - isn't hindsight wonderful).

Maktoob Business: UAE leaders rally behind Dubai ruler

James Saft for Reuters: Dubai not a canary but another miner needing oxygen

Robert Peston, BBC: Dubai: Wholly avoidable crisis

Emirates Business 24/7: Dubai World issue has been blown out of all proportions

Emirates Business 24/7: Global media twists Dubai story

The National: Exploding Dubai's debt myths

The Economist: A financial sandstorm

Maktoob Business: Dubai silence not golden as debt looms

FT: Dubai cast adrift as credibility crumbles

Time: Dubai's Woes Are a Blow to Its Ambitious Ruler

Hemscott: Quantifying Dubai's woes

The Guardian: Dubai authorities may be forced to put up Emirates airline as debt collateral

MEED: Debt storm threatens Dubai’s ambitions

The Times: Investors face huge losses as Dubai abandons debt company

Bloomberg: Dubai World’s Debt Not Guaranteed by Government, Official Says

Bloomberg: Dubai May Forfeit Financial Hub for Abu Dhabi Help (Update1)

Times: Enough glitzy debt: time for regime change

BBC: Views from Dubai: 'The end of the dream'

CNBC/Reuters: Dubai Business Leaders, Media Say Woes Overblown

WSJ: Dubai Debt Follows String of Troubles for Its Ruler

WSJ: Much Ado About Dubai

Independent: Robert Fisk: India may hold whip hand in this power game

Dail Telegraph: Dubai: an emirate in crisis

Forbes: Dubai, Abu Dhabi And Debt

The Times: A danger in Dubai

FT: Reality catches up with the Gulf’s model global city

The Guardian : Castles in the Sand.

Time: Will Dubai's Financial Problems Spread Around the Globe?

Business Week: Dubai Crisis Threatens Airbus and Boeing, Too

WSJ: Dubai Debt Freeze to Hit Property Recovery

BBC: What is Dubai and who runs it?

The Guardian: Expatriates speak of a 'changed' Dubai

The Guardian: Q&A: Dubai's debts

FT: A breathtaking blunder in Dubai

WSJ: A stark warning from Dubai

BBC: Dubai not too big to fail?

Gulf News: Dubai an attractive regional market, Ahmad says

Gulf News: Dubai defends debt payment suspension as markets fall

AFP: Dubai World Standstill News Hits Regional Confidence

Sky News: Fresh Warnings Over Cash-Strapped Dubai

Guardian: Don't expect any sense to emerge from Dubai debacle

NYT. Dubai Fund Asks for Stay on Debt Payments.

WSJ. Dubai Debt Woes Turn Ugly After It Seeks Standstill Deal

The Times. Dubai World and properties built on sand.

Daily Telegraph. Dubai recovery hopes hit by debt 'standstill' call.

FT. Dubai shock after debt standstill call