emirate

Dr. Rachel Ehrenfeld: Dubai: The Golden Mirage

by on July 28, 2010

The ongoing ordeal of a U.S. businessman who has been rotting in a Dubai jail for more than two years, deprived of his civil rights, should serve as a warning to Americans and Westerners alike doing business with Dubai, a constituent monarchy of United Arab Emirates (UAE). Shahin, a U.S. citizen, is just one of many foreigners who make up 80-95% of Dubai’s 2.3 million residents. Until his arrest, Shahin was CEO of Deyaar Realty, once Dubai’s second largest real estate developer, which, like Dubai’s entire real-estate sector, was hit hard by the global economic recession. Shahin was arrested without warrant or indictment in March 2008. Sources familiar with the case reported that he was held incommunicado for over two weeks, while his house and office were ransacked and his documents confiscated. He was deprived of food, water, sleep and access to a toilet for days. The brutality inflicted on Shahin caused his poor health to worsen, requiring him to undergo two major surgeries. After thirteen months he was charged with bribery, fraud and embezzlement Shahin was forced to sign documents he did not understand, because of threats that his wife will be jailed and his children will be sent to a shelter. When finally “released” on bail, Shahin was promptly rearrested on newly trumped-up charges and still languishes in jail. Meanwhile, the Dubai government and its autocratic ruling family have ignored entreaties by the State Department, the U.S. Ambassador and members of Congress to discuss Shahin’s plight. A letter from Senator Sherrord Brown (D-OH) to UAE’s Ambassador asking him to intervene to ensure Shahin’s health and safety while in prison remains unanswered nearly two years since it was delivered. Shahin’s Kafkaesque detention is not unusual in Dubai, where a growing number of foreigners are being subjected to the country’s arcane Islamic legal codes and stripped of Western consideration for civil and human rights. The U.S. Department of State 2009 Human Rights Report for U.A.E., states: “while the constitution prohibits arbitrary arrest and detention… there were reports that the government held persons in official custody without charge or a preliminary judicial hearing…[and] There were also reports of prison guard brutality.” Moreover, the report notes: “court decisions remained subject to review by the political leadership.” Other victimized foreigners are Canadians Karen and Daniel Andrews. The husband, Daniel, a senior executive at a multinational company, was lured to Dubai in 2005 by the promise of “paradise in the desert.” They had a rude awaking when they lost everything. In a sobering account in The Independent , in April 2009, on “The Dark Side of Dubai,” Karen noted, “The thing you have to understand about Dubai is — nothing is what it seems. Nothing. This isn’t a city, it’s a con-job. They lure you in telling you it’s one thing — a modern kind of place — but beneath the surface it’s a medieval dictatorship.” These accounts are far from revealing the full array of substantive and procedural violations of due process and of basic decency Dubai has perpetrated on Shahin, the Andrews, and many other foreigners. Lured by the glitzy façade, Westerners have not been contemplating the Emirate’s lack of transparency and its growing abuse of foreigners. The number of foreign businessmen detained in Dubai is unknown, as the local authorities do not release such information. But media reports from Europe, the U.S., and other countries that supply the bankers, businessmen, engineers and others who labor to further Dubai’s riches, reveal that such arrests have spiked since the Emirate’s economic bubble burst in 2008. Foreigners should be especially wary, as Dubai’s banking and economy are still on the decline, contrary to repeated assurances from local officials. The UAE is now wallowing in a staggering debt of $109.3 billion. On June 3, Moody’s downgraded Dubai’s Central Bank foreign and local currency rating, “reflecting the weakening of the Bank’s strength as a result of the ongoing credit issues surrounding the Dubai corporate sector,” noting the decline “in earning capability” for the Bank and all its Dubai-based competitors. Still, Dubai’s Western trappings and its well-crafted façade of the golden city in the desert continue to lure foreigners. But like every Arabian Desert mirage, many wake up with a mouthful of sand, and their life in shambles.

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Dr. Rachel Ehrenfeld: Dubai: The Golden Mirage

Dubai World Said to Offer a Shortfall Guarantee in $14.2 Billion Debt Plan

by on March 29, 2010

By Arif Sharif March 29 (Bloomberg) — Dubai World, the state-owned holding company seeking to restructure $14.2 billion of debt, offered creditors a so-called shortfall guarantee as part of a repayment plan, a person close to the Dubai government said. If the sale of Dubai World’s assets does not generate sufficient cash to repay loans, the government will make up the shortfall up to a certain level, said the person, who declined to be identified because the discussions are private. The guarantee clause was not outlined in Dubai World’s press statement on March 25 when the restructuring plan was announced. Dubai World, one of the emirate’s three main state-owned holding companies, and its property unit Nakheel PJSC are seeking to renegotiate terms on $24.8 billion of debt after the global credit crisis battered Dubai’s property market and hurt the ability of the emirate’s companies to raise loans. The Dubai government and its state-owned companies racked up $109.3 billion of debt, according to International Monetary Fund estimates, as the emirate sought to transform into a tourism, trade and financial services hub. Dubai World asked creditors March 25 to roll over outstanding debt into two new loans of five year and eight year maturities. Lenders will be paid their principal in full, although the interest rate on the loans is still being negotiated with the banks, Dubai World Chief Restructuring Officer Aidan Birkett said that day. Interest Rate Dubai World’s creditors will be paid interest below the market rate in cash, although that will be supplemented by a so- called payment-in-kind element, the person said. The person did not specify how much the payment-in kind was. Nakheel’s creditors were asked to extend loan maturities at interest rates linked to the Emirates interbank offered rate and the London interbank offered rate. Two of Nakheel’s Islamic bonds, which together raised $1.73 billion, will be paid in full when they mature this year and in 2011. The treatment of Dubai World and Nakheel’s creditors reflects the different levels of security and the legal positions of each creditor class, the person said. Dubai World’s lenders are unsecured, while lenders to Nakheel have recourse to the company’s assets, the person said. A spokesman for Dubai World declined to comment when contacted by Bloomberg News today. To contact the reporters on this story: Arif Sharif in Dubai at asharif2@bloomberg.net

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Dubai World Said to Offer a Shortfall Guarantee in $14.2 Billion Debt Plan

Dubai Shares Rise to Three-Month High on Debt-Plan Optimism; Arabtec Gains

March 28, 2010

By Zahra Hankir March 28 (Bloomberg) — Dubai shares gained for a second day, rising to the highest level this year, as the emirate said it will support Dubai World’s $24.8 billion debt restructuring. Arabtec Holding Co., the United Arab Emirates’ biggest construction company, increased the most in almost three months on improved sentiment following the announcement. Emirates NBD PJSC, the U.A.E.’s largest bank by assets, climbed for a seventh day after saying it may sell debt when the restructuring is complete. The DFM General Index rose 1.9 percent to 1,880.62, the highest since Dec. 16. Abu Dhabi’s ADX General Index rose 0.9 percent to 2,929.32, the highest since Nov. 18. Dubai shares jumped 4.3 percent on March 25 after the government said it will support state-owned Dubai World with as much as $9.5 billion, doubling to $20 billion the amount the emirate paid to holding company. Lenders to Dubai World will be repaid their principal in full by swapping loans with two tranches of new debt with five and eight-year maturities, according to the proposal. Today’s move “is a follow through from last Thursday’s announcement on the Dubai World restructuring, which was above expectations as it addressed the concerns of customers, trade creditors and sukuk holders, other than just the financial creditors,” said Yong Wei Lee, senior fund manager at Emirates NBD Asset Management. “Institutional investors who have been significantly underweight the U.A.E are most likely to increase their weighting in the market,” said Lee, who oversees around $200 million for Middle East North Africa equity funds. Nakheel’s Restructuring Dubai World’s property unit Nakheel PJSC will receive $8 billion in funding and $1.2 billion by converting government debt to equity. Dubai World and its property units Nakheel and Limitless LLC used loans to finance real-estate projects such as palm-shaped islands off the emirate’s coast, which they struggled to refinance after the credit crunch made banks reluctant to lend. The sheikhdom will supply Dubai World with $1.5 billion to support its new business plan and will convert $8.9 billion in debt to equity. Arabtec jumped 12 percent to 2.59 dirhams, the biggest increase since Dec. 28. “Thursday’s news sent a wave of optimism in the market that the cash flow cycle of contractors might improve,” said Ismail Sadek , a Cairo-based analyst at Beltone Financial. Arabtec is owed a “significant portion” of its total 4.6 billion dirhams ($1.25 billion) of receivables from Nakheel, Sadek said. Nakheel had delayed payments to contractors and suppliers causing Arabtec to stop work at its Al Furjan project earlier this year after building 550 villas at the project, which was designed to include 4,000 homes. Arabtec Upgrade Separately, Arabtec was raised to “outperform” from “market perform” with a price estimate of 3.20 dirhams at Al Mal Capital. Emirates NBD increased 3.6 percent to 3.17 dirhams, the highest since Dec. 21. The biggest bank in Dubai plans to sell debt after the restructuring is complete, Chairman Ahmed Bin Humaid Al Tayer said March 25. Qatar’s measure advanced 0.7 percent to 7,465.08, the highest since Oct. 11. The Kuwait Stock Exchange Index fell 0.3 percent. Oman’s MSM30 Index rose 0.5 percent. Bahrain’s measure retreated 1.3 percent and Saudi Arabia’s Tadawul All Share Index dropped 0.1 percent. To contact the reporters on this story: Zahra Hankir in Dubai at zhankir@bloomberg.net

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Dubai World Plan Will Be `Fair’ to Banks, Contractors, Sheikh Ahmed Says

March 16, 2010

By Arif Sharif and Anthony DiPaola March 16 (Bloomberg) — Dubai World, the state holding company restructuring $26 billion in debt, will present creditors a “fair” plan to protect long-term relations with banks and contractors, Dubai’s fiscal committee head said. The restructuring proposal will be announced “very soon,” Supreme Fiscal Committee Chairman Sheikh Ahmed Bin Saeed al- Maktoum said in an interview in Dubai today. The plan will be drawn up considering the long-term interests of banks, contractors and Dubai itself, Sheikh Ahmed said. “At the end of the day we need everybody. They need us also,” he said. “We have projects that will be started in the near future for the long term.” Dubai World, one of the emirate’s three main state-owned business groups, said Nov. 25 it would seek to delay repaying debt until at least May 30. The announcement sparked the biggest plunge in developing-nation stocks and the largest increase in emerging-market bond yields over U.S. Treasuries in four weeks, while the cost to protect against a default by Dubai doubled. The holding company and its property units, Nakheel PJSC and Limitless World, used loans to finance real-estate projects such as palm tree-shaped islands off the emirate’s coast, which they struggled to refinance amid the credit crisis. Dubai World will ask banks for permission to delay loan repayments when it presents a restructuring plan this month, three bankers familiar with the plan said March 8. ‘Acceptable to Everybody’ “Our intention is really to put something that will be acceptable to everybody,” Sheikh Ahmed said. “We believe that whatever we will put on the table it should be a very fair deal for everybody. And we as a government will always support it.” Creditors of Dubai World and its units may be able to avoid a so-called haircut, where they receive less money than they’re owed, if they wait to be repaid, two bankers familiar with the negotiations said March 8. The bankers declined to be identified because the talks are private. Another option is a graded loan recovery system, which would allow banks wishing earlier repayment lower recovery on their loans than those who are prepared to wait, a person close to the Dubai government said Feb. 17. “It’s not like we’re taking it as an excuse to slash people,” Sheikh Ahmed said of the negotiations. “That would not be the case.” Dubai should focus on its “core businesses” of tourism, re-exporting goods, logistics and services such as financial offerings, to ensure future growth, Sheikh Ahmed said. He is also heading a committee to delineate Dubai’s key growth areas and develop an expansion strategy for the emirate. Real Estate Prices “My focus today is to do what Dubai knows,” he said. The emirate had given too much attention to its overheating real estate market as prices accelerated, becoming too high over the last five years, he said. Real estate prices were now “right” for Dubai and would help to attract new residents and businesses to the emirate, Sheikh Ahmed said. The emirate’s population grew 7.6 percent last year as the business hub attracted workers, according to government data released yesterday. The number of people living in the sheikhdom rose to 1.77 million from 1.65 million at the end of 2008, the Dubai Statistics Center said. A new offshore oil discovery is “a plus” for Dubai, said Sheikh Ahmed, who heads the emirate’s energy councils. The emirate said in February it would expedite exploration of a new deposit near its four producing fields off the coast. “Any oil exploration into Dubai will always be good for the economy,” Sheikh Ahmed said, without giving details on the discovery’s size. “Within this strategy of Dubai, what I really want to concentrate on is what is the core business.” To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net ; Anthony DiPaola in Dubai at adipaola@bloomberg.net .

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Dubai’s Silence on Debt Standstill Evaporates Bailout Rally as Stocks Drop

January 31, 2010

By Michael Patterson and Haris Anwar Feb. 1 (Bloomberg) — Dubai’s failure to reassure investors its restructuring plan will succeed is causing the emirate’s benchmark stock index to drop the most in the world and forcing companies to scrap bond sales. The Dubai Financial Market General Index lost 15 percent since Dec. 14, wiping out a rally sparked by Abu Dhabi’s bailout of Dubai World that day. Bonds of the state-owned company’s property developer Nakheel PJSC sank to 55.75 cents on the dollar from 67.5 cents, while credit default swaps on Dubai government debt trade at 493 basis points, the highest level since Abu Dhabi’s fund injection. Dubai World, in talks to reschedule $22 billion of debt, failed to present an offer in a meeting with lenders in December and declined to say when a deal may be struck. Dubai Electricity & Water Authority said Jan. 17 it delayed a $1.5 billion bond sale as borrowing costs were too high. Lack of clarity on Dubai World’s restructuring plan “is creating uncertainty that is weighing heavily on the market,” said Rami Sidani , the Dubai-based head of Middle East and North Africa investment at Schroder Investment Management Ltd., which oversees about $230 billion worldwide. “We’re not out of the woods yet and we know Dubai will continue to struggle with a debt burden.” Real-Estate Crash Dubai stocks and bonds tumbled in November after the government said Dubai World would seek to delay payments to creditors until at least May 30. Investors speculated that Nakheel, which is building palm tree-shaped islands off the emirate’s coast, would default after Dubai companies lost access to cheap financing because of the global credit crunch and a 50 percent slump in Dubai home prices. Abu Dhabi’s $10 billion bailout on Dec. 14 ensured that Nakheel would have the $4.1 billion it needed to repay an Islamic bond due that day. Dubai is the second-biggest of seven states that make up the United Arab Emirates, whose capital Abu Dhabi holds 8 percent of global oil reserves. Dubai and its state-owned companies borrowed at least $80 billion until 2008 to transform the emirate into a tourism and financial hub. The Dubai stock index jumped 10 percent and bond prices soared on the day Abu Dhabi provided the funds. Dubai credit default swaps, which measure the cost of protecting against the default of government debt, sank to 430 basis points from 540. Biggest Decline The Dubai stock index has since posted the biggest decline among benchmark equity gauges in the world’s 70 largest markets. While global stocks have retreated on concern China will take steps to curb economic growth, the Dubai measure’s 15 percent loss compares with a 4 percent decline in the MSCI AC World Index . Nakheel’s $750 million of 2.75 percent bonds due 2011 lost 17 percent during the period, according to Citigroup Inc. prices on Bloomberg, while credit default swaps jumped 63 basis points. A basis point on a credit-default swap contract to protect against the default of $10 million of debt for five years is equivalent to $1,000 a year. “The Dubai World restructuring is going to be a long and tedious process,” said Shehab Gargash , a managing director at Dubai-based Daman Investments who’s holding half of his $1.5 billion under management in cash. “That’s the main reason we decided to stay out” of Dubai’s “bear market rally,” he said. Worst Is Over Templeton Asset Management Ltd.’s Mark Mobius says the Abu Dhabi bailout ensured the worst of the emirate’s debt crisis is over. The manager of $34 billion in emerging market assets said in an interview there’s “value and opportunity” in Dubai markets and that Templeton bought shares during the selloff in November and early December. “There has to be more revelations about what is being done and how, but the panic is over,” Mobius, the chairman of Templeton Asset Management, said in the Jan. 28 interview in Melbourne. “We are trying to buy at a good price given the fact that transparency isn’t complete.” The Dubai stock index trades for 5.1 times analysts’ 2010 earnings estimates, the cheapest level worldwide after Nigeria’s All Share Index, according to data compiled by Bloomberg. While investors speculate on the recovery values of Dubai debt, the lifeline from Abu Dhabi is helping the state-owned companies meet their interest payments. Nakheel paid a $10.3 million coupon last month on its 2011 bond. Dubai Holding Commercial Operations Group LLC, the investment company owned by Dubai’s ruler, made about $100 million of scheduled payments last month on three bonds. Refinancing Needs Dubai-based firms have to refinance $7.3 billion in syndicated loans and $2.8 billion in maturing bonds this year, according to Deutsche Bank AG estimates. Some of the biggest debt maturities include a $1.25 billion loan due in June by Dubai International Capital LLC, an investment company owned by Dubai’s ruler, and $1.5 billion in two floating-rate dollar notes issued by Emirates NBD PJSC. Emirates Telecommunications Corp., the U.A.E.’s biggest phone company, has deferred plans to issue the equivalent of $490 million bonds as it has enough cash for expansion plans, Ahmed bin Ali , a spokesman for the company, said Jan. 28. The Dubai government’s $1.93 billion Islamic bond issued in October was the last sale of bonds from the emirate. Drake & Scull International PJSC , a Dubai-based construction-engineering contractor that raised about 1.2 billion dirhams ($327 million) from its initial public offering in 2008, was the last stock sale from a Dubai- based company, according to Bloomberg data. “It makes very little sense for a Dubai corporate issuer to go out now and just try to force the issue in the market,” said Abdul Kadir Hussain , chief executive officer of fund manager Mashreq Capital DIFC Ltd. “Right now the market is waiting for a strategy. How are we going to reduce the absolute debt level in Dubai and how quickly is this going to happen. Investors are taking a very conservative attitude toward the U.A.E.” To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net Michael Patterson in London at mpatterson10@bloomberg.net . Vivian Salama in Abu Dhabi at vsalama@bloomberg.net

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Dubai World Removes Private Equity CEO Jackson as Company Refinances Debt

January 20, 2010

By Haris Anwar Jan. 20 (Bloomberg) — Dubai World replaced the chief executive officer of its private equity unit Istithmar World, the owner of luxury retailer Barneys New York, as the state- owned company seeks to renegotiate about $22 billion of debt. David Jackson was replaced by Istithmar’s chief investment officer Andy Watson , who was appointed acting chief executive with immediate effect, Dubai World said today in an e-mailed statement. Watson is a former director at Barclays Capital. “Dubai World is cleaning house and signaling to investors that it’s making difficult decisions and responding to their criticisms,” said Louis Gargour , the chief investment officer at hedge fund LNG Capital LLP in London. “Dubai World may sell some of its non-core assets. We believe that they will resist selling them or any assets for that matter at 50 cents on a dollar.” Istithmar and Dubai World struggled last year on investments including Barneys and CityCenter, an $11 billion project in Las Vegas. Istithmar bought Barneys in 2007 for $942.3 million. Abu Dhabi, the wealthiest member of the United Arab Emirates, provided a $20 billion bailout in 2009 for Dubai as the emirate ran into difficulties meeting payments on debt used to finance real-estate projects. ‘Maximize Value’ Debt from subsidiaries including Istithmar World, Infinity World Holding and Ports & Free Zone World will be excluded from the negotiations as these companies are on “a stable financial footing,” Dubai World said on Dec. 1. “Today, Istithmar World is focused on the steady-state management of existing assets to maximize value rather than on private equity investment,” Dubai World’s Chief Restructuring Officer Aidan Birkett said in today’s statement. As recently as October, Jackson told CNBC that Istithmar was making “small bolt-on acquisitions.” “We still see positive prospects,” Jackson said in the Oct. 23 interview. “I’m not going anywhere.” Dubai, the second-biggest of seven states that make up the U.A.E., and its state-owned companies borrowed at least $80 billion until 2008 to transform the emirate into a tourism and financial hub. The seizure of debt markets after the onset of the global credit crisis led to a 50 percent decline in property prices in the city and hampered the ability of Dubai-based companies to raise new loans to refinance maturing debt. New York Jackson became Istithmar’s CEO in 2006 and spearheaded the company’s drive to expand its portfolio. Istithmar spent at least $16.4 billion on publicly reported investments this decade, according to the Monitor-FEEM SWF transaction database. Among its investments are Yacht Haven Grande, a marina complex in the Caribbean, the W Hotel Union Square in New York and GLG Partners Inc., a hedge fund. Istithmar may halt investments as part of a restructuring effort that may result in a sale of the fund or its assets, people familiar with the plan said in September. The company’s co-chief investment officers John Amato and Felix Herlihy left the firm the same month. “Avoiding sales and restructuring maturities still seems to be the best way out for them,” Gargour said. ”A further large cash injection is likely and the best outcome for the regions reputation and solvency looking forward.” To contact the reporters on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net Arif Sharif in Dubai at asharif2@bloomberg.net

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U.A.E. Shares Drop on Concern Dubai Debt Restructuring to Cut Bank Profits

December 20, 2009

By Haris Anwar Dec. 20 (Bloomberg) — The United Arab Emirates’ shares dropped to the lowest in a week, led by Emirates NBD PJSC and National Bank of Abu Dhabi PJSC, on concern slowing economic growth and Dubai World debt restructuring will hurt banking earnings. Emirates NBD fell the most in a week as the country’s largest bank by assets was cut to “sell” at Goldman Sachs Group Inc. NBAD and Dubai Islamic Bank PJSC dropped more than 2 percent. The DFM General Index lost 2 percent to 1,841.92, headed for the lowest close since Dec. 13, at 1:11 p.m. local time. The index has slumped 12 percent since Dubai World, the state-owned holding company, said on Nov. 25 it would seek a “standstill” agreement on its debt repayments. Abu Dhabi’s ADX General Index fell 0.6 percent to 2,758.39. “The economic outlook is still uncertain and we don’t know how badly Dubai’s debt problem will hurt banks’ balance sheets,” said Chamel Fahmy , senior regional sales trader at Beltone Securities Brokerage in Dubai. “They will probably need more provisioning to cover their positions. I will stay away from the banking stocks.” Goldman Sachs on Dec. 17 also cut Dubai Islamic Bank to “sell,” saying the global financial crisis is gradually forcing a rebalancing of the U.A.E. economy. “Highly-indebted Dubai is delevering and ironing out the excesses it has accumulated over the years,” the bank said in the report. Debt Abu Dhabi, the capital of the U.A.E. and holder of 8 percent of the world’s oil reserves, on Dec. 14 provided $10 billion to Dubai by buying the emirate’s bonds. The funds are in addition to the $10 billion the country’s central bank lent Dubai in February and another $5 billion provided by two Abu Dhabi government-controlled banks last month. Dubai, the second-biggest of seven states that make up the U.A.E., and its state-owned companies borrowed at least $80 billion until last year to help turn the emirate into a tourist and financial service hub. The collapse of global credit markets led to a 50 percent crash in property prices in Dubai and raised concern some of its companies will be unable to repay loans. Emirates NBD lost 3.5 percent to 3.34 dirhams. Dubai Islamic Bank dropped 2.9 percent to 2.32 dirhams, while NBAD fell 2.7 percent to 12.85 dirhams. Qatar’s DSM 20 Index declined 0.5 percent. Saudi Arabia’s Tadawul All Share Index and Muscat’s MSM 30 Index gained or fell less than 0.1 percent. Markets in Kuwait and Bahrain are closed for a holiday. To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net

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Dubai Sold Abu Dhabi $10 Billion Five-Year Bonds to Repay Nakheel’s Debt

December 16, 2009

By Vivian Salama and Haris Anwar Dec. 16 (Bloomberg) — Dubai borrowed $10 billion from Abu Dhabi this week by selling its neighbor five-year bonds paying an annual interest rate of 4 percent, said a person close to the government, who is familiar with the transaction. Those are the same terms Dubai paid for $10 billion from the Abu Dhabi-based central bank in February and another $5 billion from government-controlled National Bank of Abu Dhabi PJSC and Al Hilal Bank in November. Abu Dhabi’s government provided the funds to Dubai on Dec. 14 to help Dubai World, the state-owned holding company, avoid defaulting on a $4.1 billion Nakheel PJSC bond payment that roiled global financial markets. The rest of the money will cover Dubai World’s interest and operating costs until the company reaches a standstill accord with creditors, Dubai’s government said. “This information should go some way toward mitigating market speculation about potential hidden costs of this funding and whether there are any assets involved in the transaction,” said Chavan Bhogaita , head of credit research at National Bank of Abu Dhabi, the United Arab Emirates’s second-largest lender by assets. Dubai World said Dec. 1 it’s seeking to restructure $26 billion of debt, less than half the $59 billion of liabilities it had at the end of 2008. Debt restructuring by Dubai state-run companies may almost double to $46.7 billion as more of the emirate’s businesses may need help making payments, Morgan Stanley said in a report Dec. 8. Dubai Autonomy Abu Dhabi is the largest of the seven emirates that formed the U.A.E. in 1971 and owns more than 90 percent of its oil reserves, the world’s sixth largest. Dubai, the second-largest emirate, has traditionally guarded its autonomy, keeping full control of economic affairs. After the emirate and its state-controlled companies borrowed $80 billion to diversify away from dwindling oil supplies, Dubai’s ruler, Sheikh Mohammed Bin Rashid Al Maktoum , has been forced to seek Abu Dhabi’s help three times this year as credit dried up, triggering a property crash in the city state. To contact the reporter on this story: Vivian Salama in Dubai vsalama@bloomberg.net Haris Anwar in Dubai on Hanwar2@bloomberg.net

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Mobius Says Dubai Transparency Pledge a `Giant Step,’ Worst of Crisis Over

December 14, 2009

By Michael Patterson Dec. 14 (Bloomberg) — Dubai’s pledge to adopt global standards on transparency and creditor protection is a “giant step in the right direction” and the worst of the emirate’s debt crisis is over, investor Mark Mobius said. “They said that going forward they wanted to become more transparent and keep people fully informed,” Mobius, who oversees more than $30 billion as chairman of Templeton Asset Management Ltd., said in a phone interview from Riyadh today. “That is a very giant step in the right direction. By making that statement, Dubai will be able to have a foremost position here in the Middle East.” The emirate said it’s committed to “transparency, good governance and market principles” in a statement today that announced a new bankruptcy law and a $10 billion bailout of state-owned company Dubai World. Dubai’s benchmark equity index surged the most in 14 months, while the $3.52 billion bond of state-controlled Nakheel PJSC more than doubled to 109.5 cents on the dollar after the statement. Prices for Nakheel’s Islamic bond maturing today had tumbled to as low as 42 cents after Dubai’s Nov. 25 announcement that Dubai World, the parent of Nakheel, would seek to delay repayments. Investors’ reaction was “blind panic” because of uncertainty about the size of the restructuring and the government’s role, Abdulrahman Al Saleh , director general of Dubai’s Department of Finance, said on Dec. 10. “In Dubai we are not good in publicizing what we are doing as much as we are good in doing it,” Al Saleh said during a conference at the Dubai School of Government. Dubai World said on Dec. 1 it was in talks to restructure less than half of its $59 billion of liabilities. Mobius’s Holdings “Some of these debts still have to be restructured,” said Mobius. “But the worst is over. To the degree that Dubai really emphasizes transparency and good corporate governance, they can really become a big leader, not only in the Middle East but globally.” Dubai World will use the bailout money from Abu Dhabi, the wealthiest of the seven sheikdoms that comprise the United Arab Emirates, to repay the Nakheel debt that comes due today. The rest will cover Dubai World’s interest and operating costs until the company reaches a standstill agreement with its creditors, Dubai’s government said in the statement. Mobius said he’s traveling to Dubai tomorrow to meet with companies and that there are “very good opportunities” in the emirate’s stock market for long-term investors. Templeton owns shares of Emaar Properties PJSC, the developer of the world’s tallest tower in Dubai, and DP World Ltd., the Middle East’s biggest port operator, Mobius said. To contact the reporters on this story: Michael Patterson in London at mpatterson10@bloomberg.net ;

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U.A.E. Shares Advance the Most in a Year, Led by Emaar Property, DP World

December 14, 2009

By Vivian Salama Dec. 14 (Bloomberg) — United Arab Emirates shares surged the most in more than a year after the Abu Dhabi government provided $10 billion to Dubai to help pay debt, including the $4.1 billion needed for Nakheel PJSC’s bond maturing today. Emaar Properties PJSC , the country’s biggest developer, climbed 15 percent, the most permitted by exchange rules. Emirates NBD PJSC , the U.A.E.’s largest lender, added the most since October. DP World Ltd., the Middle East’s biggest ports operator and a unit of Dubai World, climbed to the highest this month. First Gulf Bank PJSC jumped the most since May 2005. The DFM General Index added 10 percent, the biggest intraday gain since October 2008, to 1,866.99 at 11:23 a.m. in the emirate. The measure had tumbled 19 percent since Dubai World on Nov. 25 sought a “standstill” agreement on its debt. The ADX General Index, in the neighboring sheikhdom of Abu Dhabi, rose 7.5 percent. “This is a shot in the arm for the U.A.E. markets,” said Ian Munro , an equity analyst at MAC Capital Advisors in Dubai. “There was some speculation yesterday that this would occur and now that it has, it should really provide the boost needed to take our markets into the new year.” ‘Tackling Concerns’ Abu Dhabi provided $10 billion to Dubai’s Financial Support Fund to help Dubai World, the state-owned holding company, meet its obligations, including Nakheel’s Islamic bond. Dubai will use the rest of the money to pay trade creditors and contractors as well as meet “interest expenses and company working capital through April 30, 2010 — conditioned on the company being successful in negotiating a standstill as previously announced,” the Dubai government said in an e-mailed statement today. Dubai World said Dec. 1 it’s seeking to restructure $26 billion of debt, less than half the $59 billion of liabilities it had at the end of 2008. Nakheel’s bond repayment was the biggest maturity for a Dubai entity since global credit markets froze after the September 2008 collapse of Lehman Brothers Holdings Inc. “This is terrific news,” said Rabih Sultani , a fund manager at Duet Mena Ltd. in Dubai. “The support covers the upcoming Nakheel maturity, it tackles most of Dubai’s longstanding concerns, including support to the banking system, outstanding trade and contractor dues, and most importantly, it confirms the one nation policy.” ‘Skeptical’ Dubai ruler Sheikh Mohammed bin Rashid Al-Maktoum said Nov. 9 that those who doubt the unity of Dubai and Abu Dhabi, which holds 8 percent of the world’s oil reserves, should “shut up.” Nakheel accumulated debt during a five-year real-estate boom in Dubai, when the sheikhdom borrowed $10 billion and its state-controlled companies $70 billion to help diversify the economy. Asian stocks and U.S. index futures rebounded from losses. The euro and the pound rallied. Global stocks tumbled following Dubai World’s announcement last month. “Markets tend to change moods fairly quickly, and while I think some damage has been done, a good thing may come from this,” said Marios Maratheftis , Dubai-based economist at Standard Chartered Bank. “Markets will be a bit more skeptical about implicit guarantees. That’s the way it should have been in the first place.” Emaar surged to 3.61 dirhams. Emirates NBD added 4.8 percent, the most since Oct. 25, to 3.29 dirhams. The lender is the biggest creditor to Dubai World with outstanding loans of $3 billion, the Financial Times reported on Dec. 3, citing a banker with knowledge of the debt. DP World , which said last month it is not involved it the restructuring of its parent company, soared 10 percent to 41.9 cents. First Gulf Bank, an Abu Dhabi-based lender owned by the emirate’s ruling family, also added 10 percent to 15.95 dirhams. Oman’s MSM30 Index rose 2.3 percent, Qatar’s benchmark climbed 2.8 percent, Bahrain’s measure advanced 1 percent and the Kuwait Stock Exchange Index increased 0.5 percent. To contact the reporter on this story: Vivian Salama in Dubai vsalama@bloomberg.net

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Nakheel Had First-Half Loss of $3.65 Billion on Writedowns, Document Shows

December 8, 2009

By Arif Sharif Dec. 8 (Bloomberg) — Nakheel PJSC, the Dubai World-owned property developer seeking to renegotiate debt, had a first-half loss of 13.4 billion dirhams ($3.65 billion) as revenue fell and it wrote down the value of land and property, according to a document obtained by Bloomberg News. The loss for the company, which is building palm tree- shaped islands off the emirate’s coast, compared with a year- earlier profit of 2.65 billion dirhams, according to its financial statement for the six months to June. Revenue fell 78 percent to 1.97 billion dirhams. A spokesman for Dubai World, Nakheel’s parent, declined to comment. Dubai World began talks last week with banks to restructure $26 billion of debt, including a $3.52 billion Islamic bond of Nakheel maturing on Dec. 14. Dubai World held talks yesterday with its six main creditors, according to a banker familiar with the negotiations. To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net

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Dubai Stocks Tumble Most in World on Nakheel Debt Restructuring Concerns

December 8, 2009

By Claudia Maedler Dec. 8 (Bloomberg) — Dubai shares tumbled to the lowest level in almost five months, led by Emaar Properties PJSC and Emirates NBD PJSC, on concern that Dubai World is struggling to restructure its debt. Emaar , the United Arab Emirates’ biggest real-estate developer, slumped 7.6 percent and Emirates NBD, the region’s largest publicly traded bank by assets, retreated to the lowest since Sept. 3. The DFM General Index plunged 4.7 percent, the biggest fluctuation among global benchmarks tracked by Bloomberg, to 1,663.35 at 10:41 a.m. in the emirate. The measure, which is heading for the lowest close since July 13, has tumbled 20 percent since Dubai said on Nov. 25 that it was seeking a “standstill” agreement on Dubai World’s debt. Dubai World last week began talks with banks to restructure $26 billion of debt, including a $3.52 billion Islamic bond of property unit Nakheel PJSC maturing on Dec. 14. Debt restructuring by Dubai state-run companies may almost double to $46.7 billion as more of the emirate’s businesses could need help making payments, Morgan Stanley said. “Until there is some clarity on debt restructure, there won’t be any serious buyers,” said Julian Bruce , director of institutional equity sales at EFG-Hermes Holding SAE in Dubai. “The closer we get to the Nakheel deadline with no news, the worse it will be.” Emaar fell to 2.91 dirhams, poised for the lowest close in four months. Emirates NBD lost 4.8 percent to 3.59 dirhams. Abu Dhabi’s index dropped 1.5 percent, bringing the two-day retreat to 3.2 percent. Oman’s MSM30 Index declined 0.4 percent, while the Kuwait Stock Exchange Index was unchanged. To contact the reporter on this story: Claudia Maedler at cmaedler@bloomberg.net

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Law firms navigate foggy Dubai regulation as UK awaits asset sale

December 7, 2009

Dubai’s longest holiday of the year, the emirate’s government announced it would be requesting a six-month debt standstill from creditors to its wholly-owned ­holding company Dubai World. In addition to this, some units of the business, including

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Law firms navigate foggy Dubai regulation as UK awaits asset sale

December 7, 2009

Dubai’s longest holiday of the year, the emirate’s government announced it would be requesting a six-month debt standstill from creditors to its wholly-owned ­holding company Dubai World. In addition to this, some units of the business, including

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Law firms navigate foggy Dubai regulation as UK awaits asset sale

December 7, 2009

Dubai’s longest holiday of the year, the emirate’s government announced it would be requesting a six-month debt standstill from creditors to its wholly-owned ­holding company Dubai World. In addition to this, some units of the business, including

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Fareed Mohamedi: The Resilience of Dubai and the Gulf

December 1, 2009

The collapse of Dubai World has called into question the failure of the Dubai economic model and even undermined confidence in the economic future of the Gulf. Much of these sentiments are misplaced as was the loss of confidence in the “Asian Model” in the late 1990s. In fact, both are quite similar since Dubai largely copied Singapore and the other Southeast Asian tigers. Structurally, both had three essential features: An efficient and effective state planned and built world class infrastructure to attract private businesses. Of course, the seedy side of this was the use of virtually indentured labor from South Asia (in the case of Southeast Asia it was the Philippines and Indonesia). Business investment was encouraged and actually established directly by the state to provide services to a globalized market place (i.e. tourism, business services, media, telecom, cargo handling and even additions to the global production chain) Regional gaps and shortages created by restrictions and blockages in trade and finance in specific countries (for Dubai these target markets were Iran, Saudi Arabia, India, Pakistan and the FSU) were filled and alleviated. Two additional features facilitated and ensured the development of the economic space: A heavy reliance on debt financing, which in the specific case of Dubai also exploited the innovations of Islamic finance seen in the last decade The creation of commercially run government companies that had the implicit guarantee of the sovereign. In Dubai’s case there was an additional implicit guarantee from Abu Dhabi. These mobilized capital and created core sectors which then led to the in-gathering of other private sector businesses Both the Asia Model and its Gulf clone had a big weakness – over reliance on debt. This was partly a function of the government guarantees and in this case, Abu Dhabi’s back stop role. The success of Dubai in promoting itself also played a major role in the financial overstretch as local, regional and international lenders indulged the Emirate. Given the enormous amounts of excess liquidity in the Gulf and worldwide, prior to the financial crisis, it was almost inevitable that Dubai borrowed excessively, just as the Southeast Asian had in the run up to the crash in 1997-1998. Despite this proclivity towards over borrowing, the fundamentals of the Dubai model are still sound. The infrastructure has been built and is still very useful. The underlying business logic of Dubai Inc – i.e. globalization of services and meeting regional finance and trade needs — is still very viable even if demand for these services is somewhat more muted due to the problems of the world economy, financial instability and reversals in globalization. Moreover, this will put more pressure on the Dubai Executive to tighten up on regulations and improve governance, including financial management, which should improve the ability of Dubai to weather future storms. Ironically, one of the consequences of the financial bust, a sharp reduction in asset prices, will enhance the Emirate’s competitiveness. What appears not to be sound is the political issue which underpins the Dubai model (see separate forthcoming MIS memo). To get back on track, ruling families of the UAE will have to appear united and work on putting Dubai back on a more sustainable footing. Once this is done, there are few reasons for Dubai not to grow at a steady sustainable rate over the long term. Another important factor that will help the long term growth of Dubai is that the rest of the Gulf’s economies are resilient and their growth models (adaptations of Dubai and the Asian Model) are sound. Saudi Arabia is embarking on a huge capital investment program financed not by debt but by government cash reserves and a determination to keep prices above the Kingdom’s threshold price of $55/b. Foreign and domestic private investment in petrochemicals and other downstream industries will also prolong the strong growth prospects in the Kingdom. Similarly, Abu Dhabi is trying to develop its economy again from its vast foreign exchange reserves. While Abu Dhabi’s development could be competition to Dubai, it most likely will complement its neighbor because many of the services it requires could be more economically purchased next door. The overall Gulf’s growth will certainly help Dubai – Iraq’s reconstruction is still on the horizon and could be another fillip to regional growth prospects. The ultimate threat to the wellbeing of the region in the medium term is a sustained fall in the price of oil. There the prospects overall look fairly favorable despite a few dark clouds on the horizon. Most excess capacity is in the hands of the Saudis who are loath to do anything to destabilize the price. Other potential competitors to the Saudis and overall OPEC – the BRINK countries – potential output surges are not expected for a few years and there is still a high degree of expectation that they will absorbed without being disruptive to prices. Overall, the fundamentals and the economic policies of the Gulf, including Dubai, are sound and we will likely see this episode fade into the past –just as the Asian crisis did after the late 1990s.

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Dubai Default Swaps Show No Distress on Abu Dhabi’s Bailouts (Bloomberg)

November 29, 2009

Nov. 30 (Bloomberg) — Dubai’s debt risk, after jumping the most last week since January, is still below the level signaling a potential failure as investors expect the emirate will be rescued by oil-rich neighbor Abu Dhabi.

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A house built on sand

November 27, 2009

World, a large sovereign fund wholly owned by the emirate of Dubai, suspending the repayment of all its debt for six months. Interestingly, Dubai (one of the seven kingdoms which comprise the United Arab Emirates) has no oil reserves and therefore no

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Dubai’s Debt Problems Cast Shadow Over Entire Region

November 27, 2009

DUBAI, United Arab Emirates — For years, Dubai seemed unstoppable, an oasis of excess boasting indoor ski slopes and manmade islands, the world’s tallest tower and dreams that reached even higher. Now the bills are coming due, and the emirate’s debt problems are tarnishing a place built on borrowed time and money – and threatening to spill into other Gulf Arab nations. State-owned conglomerate Dubai World’s call for a delay in repaying some of the $60 billion it owes creditors will likely make international investors view even more fiscally conservative countries through a lens of uncertainty, analysts say. The announcement is “impacting everybody in the region – the good and the bad,” said John Sfakianakis, chief economist at Saudi-based Banque Saudi Fransi-Credit Agricole Group. “Right now we’re still seeing the impact of this, and the impact will be that everybody is being negatively perceived,” Sfakianakis said. In Dubai and in other Gulf nations, rulers keep tight control over information on their fiscal standing and dealmaking even as they draw in hundreds of billions of investment dollars. For example, in Saudi Arabia, the Arab world’s largest economy, few were aware of the $22 billion debt crunch confronting two of the kingdom’s largest privately held conglomerates earlier this year. The news filtered out as the companies fought each other in court, with one accusing the other of fraud. While international investors were once willing to gamble on Gulf countries, largely because of their oil wealth, the global financial meltdown made them less willing to take risks. The Dubai crisis will only heighten those concerns, analysts say. “Foreign investors will sharply divide the way they recognize investment opportunities in the Gulf based on which countries have oil and which don’t,” said Simon Henderson, a Gulf energy specialist at the Washington Institute for Near East Policy. Unlike Saudi Arabia, Qatar or even Dubai’s neighboring emirate, Abu Dhabi, Dubai lacks oil wealth. The government-backed entities known as Dubai Inc. tapped credit markets to engineer the city-state’s spectacular growth. Over the past decade, the tiny emirate, one of seven that make up the United Arab Emirates, transformed itself into a regional financial hub, a magnet for tourists and foreign workers. It constructed high-rises with stellar Persian Gulf views and an indoor ski slope, and offered a freewheeling lifestyle frowned upon elsewhere in the UAE, as well as the region. A manmade island shaped like a palm frond beckoned. Dubai boldly built the world’s tallest skyscraper, Burj Dubai, set to open in January. The global credit crisis derailed the dream. Property prices have plunged by 50 percent since last year. Projects were canceled, and expatriate workers left en masse. Today, buildings sit unfinished, apartments unsold or empty. Dubai World’s announcement that it was seeking at least a six-month delay in paying back its debt sent shock waves around the world Friday. Oil prices dived to near $74 per barrel, and Asian markets tumbled for the second consecutive day. In the U.S., the Dow Jones industrials lost more than 150 points. Dubai’s overall debt load is seen as at least $80 billion, underscoring how grave Dubai World’s announcement was for the emirate’s financial health. Later comments by one of the emirate’s top financial officials that the call for a delay was a “sensible business decision” and “carefully planned” did little to mitigate the damage. Henderson said it was “an extraordinarily arrogant decision,” made public on the eve of Thanksgiving in the U.S. and just before a three-day Islamic feast. “It’s impossible they don’t realize this will be taken as a personal insult by the world’s financial community,” Henderson said, adding that it would not be surprising if creditors were unsympathetic. Fears about the debt problems were compounded by lack of detail provided by Dubai authorities. The announcement also raised worries that reassurances provided by Dubai over the past few months were just an attempt to hide the magnitude of the problem. “When people don’t know what the extent of the problem is, their concerns deepen,” said Jane Kinninmont, a London-based specialist on Gulf economies at the Economist Intelligence Unit. Kinninmont said that there is a “real shortage” of economic data to assess the recession’s impact on Dubai. Two Abu Dhabi majority-owned banks had already bought up $15 billion in Dubai bonds as part of a $20 billion program earlier this year. Analysts are concerned that Abu Dhabi may not back all of Dubai’s assets, and that international lenders will take a second look at investing there and in other Gulf countries with a history of a lack of transparency. Already, the effects have begun to surface. Standard & Poor’s downgraded its ratings of several Dubai government-related entities, linking its decision to the Dubai World announcement. “In our view, such a restructuring may be considered a default under our default criteria, and represents the failure of the Dubai government to provide timely financial support to a core government-related entity,” said S&P analysts. Elsewhere in the region, Bahrain-based Gulf International Bank said it was delaying a sale of $4 billion in five-year bonds that had already garnered 60 orders, pinning its decision on Dubai and the “best interest of investors participating in the deal.” The latest news is at the very least a wake-up call to investors, analysts say. “Dubai’s current problems are a long overdue consequence of the bursting of the global property bubble rather than the start of a new financial crisis,” analysts at Capital Economics concluded in a research note Friday. Analysts said they were troubled by Dubai’s apparent determination to downplay its financial predicament. Dubai’s ruler, Sheik Mohammed bin Rashid Al-Maktoum, had continually dismissed concerns over the city-state’s liquidity and denied for months that the economic downturn even touched the glitzy city-state. Two months ago, he told Dubai’s critics to “shut up.” __ AP Business Writer Tarek El-Tablawy contributed to this report from Cairo.

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STOCKS NEWS EUROPE-UK property shares fall on Dubai worries

November 26, 2009

UK property stocks fall on concerns Dubai’s debt problems will dampen prospects for Britain’s recovering commercial real estate market due to potential firesale by the emirate and lower investments from the Middle East. The Dubai government could

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Dubai World Seeks to Delay Repayment of Debt; Default Risk Rises to Record

November 25, 2009

By Arif Sharif and Camilla Hall Nov. 25 (Bloomberg) — Dubai World, the government-owned holding company struggling with $59 billion of liabilities, is seeking to delay repayment on all of its debt, even after Abu Dhabi banks provided $5 billion for Dubai’s support fund. Dubai World will ask all creditors for a “standstill agreement” as it negotiates to extend the maturities of its debt, including $3.52 billion of Islamic bonds due for repayment on Dec. 14 by its property unit Nakheel PJSC, the builder of Dubai’s palm tree-shaped islands, the company said in an e- mailed statement today. The cost to protect against a default by Dubai surged 111 basis points to 429 basis points, ranking it the sixth highest- risk government borrower, according to credit-default swap prices from CMA Datavision in London. The contracts, which increase as perceptions of credit quality deteriorate, are now higher than Iceland’s after climbing 131 basis points in November, the biggest monthly increase since January. The emirate, home to the world’s tallest tower and the biggest man-made islands, owes $4.3 billion next month and another $4.9 billion in the first quarter of 2010 through government and corporate debt, Deutsche Bank AG data show. Abu Dhabi government-controlled banks, National Bank of Abu Dhabi PJSC and Islamic lender Al Hilal Bank bought all $5 billion of bonds from the government, Dubai’s Department of Finance said in an e-mailed statement today. “The Dubai Financial Support Fund, working with the chief restructuring officer, will start to assess and evaluate the extent of the restructuring required,” the Dubai Department of Finance said in a statement. “As a first step, Dubai World intends to ask all providers of financing to Dubai World and Nakheel to ‘standstill’ and extend maturities until at least May 30.” The price of Nakheel bonds dropped to 80 percent of face value. Debt Restructuring Dubai will draw down $1 billion from the bonds sold to Abu Dhabi to provide funding through a sale of securities to National Bank of Abu Dhabi PJSC and Islamic debt, or sukuk, to Al Hilal. Dubai’s Supreme Fiscal Committee hired Deloitte LLP to lead the restructuring of Dubai World debt, the Department of Finance said. Deloitte’s Aidan Birkett , managing partner for corporate finance, was assigned. Dubai, the second biggest of seven sheikhdoms that make up the United Arab Emirates, set up a $20 billion Dubai Financial Support Fund after the credit crisis triggered the world’s worst property crash and hurt its finance and tourism industries. The emirate raised $10 billion by selling bonds to the U.A.E. central bank in February, with some of the money going to property developers. ‘Shut Up’ Dubai ruler Sheikh Mohammed Bin Rashid Al-Maktoum said Nov. 9 the emirate’s bond program to raise a further $10 billion will be “well received,” and those who doubt the unity of Dubai and Abu Dhabi should “shut up.” Abu Dhabi, the U.A.E.’s capital, is owner of the world’s biggest sovereign wealth fund and holds almost all of its oil. Eleven days later, he removed the governor of the Dubai International Financial Centre, Omar Bin Sulaiman , who had led efforts to transform Dubai into a Middle East finance hub. The change came 24 hours after Sheikh Mohammed dropped the chairmen of Dubai Holding LLC and Dubai World, two large state-owned business groups, as well as the head of U.A.E.’s biggest developer Emaar Properties PJSC from the board of the Investment Corp. of Dubai , the emirate’s main holding company. Home prices in Dubai plummeted 47 percent in the second quarter from a year ago, the steepest drop of any market, according to Knight Frank LLC. Property prices may drop further, a survey by Colliers International showed Oct. 14. Dubai World had $59.3 billion in liabilities at the end of last year, its subsidiary Nakheel Development Ltd., said in a statement posted on the Nasdaq Dubai Web site Aug. 20. The company had total assets of $99.6 billion at the end of 2008 and total revenue of $14.2 billion. To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net To contact the reporter on this story: Camilla Hall in Dubai at chall24@bloomberg.net

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Dubai Ruler Removes Aides in Effort to Court Investors Ahead of Bond Issue

November 23, 2009

By Henry Meyer Nov. 23 (Bloomberg) — Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum fired one senior aide and removed three others from the board of Dubai’s main holding company as the debt-laden emirate tries to secure a second $10 billion injection of funds. On Nov. 20, Sheikh Mohammed removed the governor of the Dubai International Financial Centre, Omar Bin Sulaiman, who had led efforts to transform Dubai into a Middle East finance hub. A day earlier, he dropped Mohammad al-Gergawi , Sultan Ahmed Bin Sulayem and Mohammed Ali Alabbar from the board of the Investment Corporation of Dubai. The three were at the forefront of a construction drive that began in 2002 and collapsed last year after the global financial crisis engulfed Dubai. Sheikh Mohammed’s moves were aimed at exerting more control over the web of competing, state-owned companies that he used to accelerate diversification away from oil and which amassed $80 billion of debts. Shares in Dubai fell to a two-month low yesterday following the reshuffle. “Dubai is trying to get the maximum investor subscription for this $10 billion bond issue,” said Christopher Davidson , a professor at Durham University in the U.K. and author of the 2008 book “Dubai: The Vulnerability of Success.” “Sheikh Mohammed needs to put new people in who are not tainted by the bubble economy of past years.” The Dubai Financial Market General Index yesterday lost 2.6 percent, falling to 2,073.66. Abu Dhabi’s measure slipped 2 percent to its lowest since Sept. 2. The sheikh’s sweeping changes introduced “a degree of uncertainty” which unsettled the markets, said Farouk Soussa , an analyst with Standard & Poors in Dubai. Bond Issue The Dubai government is in the final stages of preparing the second half of the bond issue, Alabbar said on Nov. 20. Investors will buy a “reasonable chunk” of the bond, he said. The bonds will be issued before the end of the year, Sheikh Ahmed bin Saeed Al-Maktoum, chairman of the emirate’s Supreme Fiscal Committee, said on Nov. 16. The remainder is likely to be bought by the federal government in Abu Dhabi, which has 90 percent of the oil in the U.A.E. and bailed out Dubai in February with a $10 billion bond issue subscribed entirely by the U.A.E. central bank. Dubai’s real-estate market was the worst affected by the global financial crisis. Home prices have tumbled about 50 percent from their peak, and may drop another 20 percent this year, Deutsche Bank AG said in June. Waterfront Development Bin Sulayem is chairman of Dubai World, a state-run holding company that has about $59 billion of debt and other liabilities. It controls property developer Nakheel PJSC, which has had to cancel plans for a new waterfront development the size of Hong Kong Island. Nakheel has to repay a $3.52 billion bond maturing in December. Al-Gergawi is chairman of Dubai Holding, which owns developers including Dubai Properties LLC, Sama Dubai LLC and Tatweer LLC. Tatweer has put on hold a project to build “Dubailand,” a Disneyland-style leisure park that would be three times the size of Manhattan. Alabbar is chairman of Emaar Properties PJSC , the largest developer in the U.A.E., which is building the world’s tallest tower. The cost of protecting Dubai bonds from default rose 3 percent to 313 basis points on Nov. 20, five-year credit-default swap prices show. The contracts, which get more expensive as perceptions of credit quality worsen, traded at 287 basis points on Oct. 20, the lowest in 12 months, Bloomberg data show. ‘More Carefully’ The emirate will study the viability of projects more closely in the future, Sheikh Mohammed said Sept. 9. “We’ll be more careful now,” he said. In June, Emaar said it was in talks to combine with Dubai Properties, Sama Dubai and Tatweer as it aims to control the supply of new buildings amid a glut of homes. The replacement of the DIFC governor is part of efforts to improve the efficiency of government institutions and companies, and “consolidate the emirate’s growing importance as an international center for finance, business, trade, tourism and all services,” Mohammed Ibrahim Al Shaibani , director-general of the ruler’s court, said in an e-mailed statement on Nov. 20. Ahmed Humaid al-Tayer , the new governor of the DIFC, which is home to regional offices of banks including Goldman Sachs Group Inc. and Deutsche Bank AG, said Nov. 21 he would pursue the same strategy as his predecessor. Al-Tayer is also chairman of Emirates NBD PJSC, the U.A.E.’s biggest bank by assets, and remains a member of the ICD board along with Al Shaibani, the head of the ruler’s court. The other four board members are Sheikh Mohammed, two of his sons and his uncle. The four sidelined Dubai powerbrokers have to some extent been made scapegoats, said Simon Henderson , an expert on the Gulf monarchies at the Washington Institute for Near East Policy . “They were given authority and access to capital and told to go out there and expand Dubai, they were given a license and latitude, and to that extent, they were obeying orders,” he said. To contact the reporter on this story: Henry Meyer in Dubai at hmeyer4@bloomberg.net .

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Dubai’s Sheikh Mohammed Tightens Control of Investment Arm With New Board

November 21, 2009

By Henry Meyer Nov. 21 (Bloomberg) — Dubai ruler Sheikh Mohammed Bin Rashid Al-Maktoum tightened his family’s control of the emirate’s largest holding company, the Investment Corporation of Dubai. A decree posted Nov. 19 on Sheikh Mohammed’s Web site listed six members of a new board. It didn’t include Mohammad al-Gergawi , Sultan Ahmed Bin Sulayem or Mohammed Ali Alabbar , three key business aides of the Dubai ruler who are currently named as directors on the investment body’s Web site . Al-Gergawi, Bin Sulayem and Alabbar were at the forefront of a debt-driven building boom in Dubai that collapsed after the onset of the global financial crisis last year. Dubai, the second-biggest of seven states that make up the United Arab Emirates, and its government-owned companies borrowed $80 billion to finance the emirate’s transformation into a financial and tourist hub before credit markets froze. Sheikh Mohammed will continue to chair the board of the investment body. His son, Crown Prince Sheikh Hamdan bin Mohammed bin Rashid Al-Maktoum, is the deputy chairman. Other members of the board, which will serve for three years, include Sheikh Ahmed bin Saeed Al-Maktoum, Sheikh Mohammed’s uncle, who is chairman of Emirates Airline. ‘Monopolization of Power’ “We’re seeing a monopolization of power by the ruler’s court,” said Christopher Davidson , a Middle Eastern studies professor at Durham University in the U.K. and author of the 2008 book “Dubai: The Vulnerability of Success.” “Sheikh Mohammed entrusted a section of the Dubai economy to these powerful captains of industry and he feels they let him down.” Bin Sulayem is chairman of Dubai World, a state-run holding company that controls port operator DP World Ltd., property developer Nakheel PJSC and asset management firm Istithmar World PJSC. It has about $59 billion of debt and other liabilities. Al-Gergawi is chairman of Dubai Holding, which owns developers including Dubai Properties, Tatweer and Sama Dubai. Alabbar is chairman of Emaar Properties PJSC . The reshuffle of the investment holding company follows a move earlier this month by Sheikh Mohammed to take direct control of the emirate’s planning and supervisory agency, as the government tightens scrutiny of indebted state companies. The agency, known as the Executive Office, set up in 2006, will now operate under Sheikh Mohammed’s court, according to a Nov. 4 statement. The Investment Corporation of Dubai will take control of Dubai Duty Free under the Nov. 19 decree. It already controls assets including Emaar, the U.A.E.’s biggest developer, Emirates Airline, Emirates NBD bank and Dubai Aluminium Co., the largest smelter in the Middle East. To contact the reporter on this story: Henry Meyer in Dubai at hmeyer4@bloomberg.net .

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Dubai Ruler Says Bond Will Be `Well Received,’ Tells Critics to `Shut Up’

November 9, 2009

By Arif Sharif and Maher Chmaytelli Nov. 9 (Bloomberg) — Dubai’s second half of a $20 billion bond program will be “well received,” and those who doubt the unity of Dubai and Abu Dhabi should “shut up,” the emirate’s ruler Sheikh Mohammed Bin Rashid Al-Maktoum said. “The second tranche of the bond program will be well received, it will be widely subscribed and will be used directly to meet Dubai’s obligations in the next few years,” Sheikh Mohammed told an investors conference organized by Bank of America Merrill Lynch in Dubai today. Dubai, the second-biggest of seven states that make up the United Arab Emirates, raised $1.93 billion last month from the biggest sale of Islamic bonds in the Gulf Arab region this year. The $1.25 billion dollar-denominated portion of the bond traded at a yield of 6.42 percent today, compared with a 3.85 percent yield investors are seeking for a five-year Abu Dhabi bond. The sheikhdom set up the $20 billion support fund after the global credit crunch hurt its property, finance and tourism industries, leaving companies unable to raise debt as credit markets froze. The first $10 billion was raised by selling five- year bonds to the U.A.E. central bank in February, and some of the money went to property developers like Nakheel PJSC, which is building palm tree-shaped islands off Dubai’s coast. Dubai, Abu Dhabi The second half of Dubai’s bond program would attract “majority government and minority private sector in my opinion,” said Mohammed Alabbar , chairman of Emaar Properties PJSC, and a member of the Dubai Executive Council in an interview with CNN on Oct. 9. The bond may be issued in November, he said. Central Bank Governor Sultan bin Nasser al-Suwaidi said on July 15 that the U.A.E. may buy part of Dubai’s second bond offering. “Meaningful participation by the private sector would be a strong signal for Dubai that investor sentiment has improved,” said Tristan Cooper , a Dubai-based Middle East sovereign analyst at Moody’s Investors Service. “This provides a motivation for the Dubai government to get private investors involved even if it costs more than selling it all to the federal government.” Dubai allowed foreigners to buy property in some parts of the emirate in 2002, sparking a five-year building frenzy. The boom ended after the credit crisis crimped mortgage lending, forcing the emirate to look to Abu Dhabi, the U.A.E.’s capital and holder of 8 percent of global oil reserves, for support. “I assure you that we will be there for each other when we need it,” Sheikh Mohammed said, referring to the relationship between Dubai and Abu Dhabi. “I want to tell these people who nag about Dubai and Abu Dhabi to shut up.” Stocks Gain Dubai stocks extended gains after the ruler’s comments, climbing to the highest in a week. The DFM General Index added 1.4 percent, while Abu Dhabi’s measure rose 0.2 percent. Sheikh Mohammed’s statement “reiterates the strong link between Dubai, a non-oil state, and the important oil state of Abu Dhabi,” said Luis Costa , an emerging market debt strategist at Commerzbank AG in London. “Most investors are raising their expectations of net issuance out of the Middle East in 2010.” Dubai’s government borrowed $10 billion until last year and its state-related companies $70 billion to help diversify its economy. The emirate built a business park for financial service companies – which is home to the regional offices of Goldman Sachs Group Inc., Standard Chartered Plc, and HSBC Holdings Plc – as well as started a stocks, derivatives and energy exchange. The sheikhdom and its state-owned companies have to repay $15.8 billion of bonds and loans maturing this year, $9.2 billion in 2010, $19.8 billion in 2011 and $17.3 billion in the following year, according to a Deutsche Bank AG report in August. The government said yesterday it repaid a $1 billion civil aviation sukuk due Nov. 4. The seizure of credit markets sparked fears Dubai may not be able to refinance debt. Helps Sentiment The ruler’s comments “will help sentiment,” said Fadi Al Said , head of equities at ING Investment Management (Dubai) Ltd. “These strong statements coming from him directly are a clear message based on the success of the last sukuk issue. I think there will be a substantial portion that might get picked up by investors.” Dubai World, the state-owned holding company, is in talks with banks to reschedule at least $12 billion of debt, a person close to the talks said Sept. 14, speaking anonymously because the negotiations are private. Dubai World unit Nakheel must repay a $3.5 billion Islamic bond due at year-end. “Some may believe that Dubai could have acted faster in combating the impact” of the credit crisis, Sheikh Mohammed said. “We preferred to wait rather than rushing because we are keen to ensure strengthening our major enterprises and restructure them in a way that will have the momentum and the strength to cope with the realties of the new economy.” To contact the reporters on this story: Arif Sharif in Dubai at asharif2@bloomberg.net Maher Chmaytelli in Dubai at mchmaytelli@bloomberg.net or

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Dubai World May Sell Bonds to Repay Maturing Nakheel Sukuk, Bankers Say

October 21, 2009

By Arif Sharif Oct. 21 (Bloomberg) — Dubai World , the state-owned holding company grappling with $40 billion of debt, may be able to sell bonds to repay loans, including a $3.5 billion Islamic bond due at year-end, two bankers familiar with the group’s plans said. Some of the money needed to settle the Islamic bond, or sukuk, of Dubai World’s real-estate unit Nakheel PJSC may be raised from a bond sale and the rest from local lenders, said the bankers, who declined to be identified because nothing has been decided yet. Some of Nakheel’s Middle Eastern bondholders may accept an offer to extend the bond’s maturity, they said. “Market sentiment has improved a lot,” said Abdul Kadir Hussain , chief executive officer of Mashreq Capital (DIFC) Ltd. , a Dubai-based fund management firm. Dubai will still “not only have to be pretty transparent about how the sukuk will be refinanced, but also what their strategy is to tackle the emirate’s entire debt situation,” he said. The cost of protecting against a default on Dubai’s bonds for five years has fallen 70 percent from a two-year high in February, ranking it between Lithuania and Lebanon, data compiled by Bloomberg show. A successful repayment of the Islamic bond, on which investors were concerned Nakheel may default after a slump in property prices, will make it easier for banks to reschedule $12 billion of Dubai World’s debt that mature during the next three years, the bankers said. $20 Billion Rescue Fund The decision to sell bonds will hinge in part on how much money Nakheel gets from a $20 billion rescue fund the government is raising, the bankers said. Both the fund and Dubai World’s creditors are seeking more disclosure on the company’s business plan, cash flow projections and its strategy to repay debt, they said. Creditors haven’t yet reached consensus on giving Dubai World more time to repay the loans, they added. Dubai will probably complete raising the second $10 billion for the support fund to help state-owned companies through the credit crisis by the end of next month, Mohammed Alabbar , a member of Dubai’s Executive Council said Oct. 9. A spokeswoman for Dubai World declined to comment. Credit-default swaps tied to Dubai’s bonds, or the cost to protect against default, have fallen to 288 basis points from 976 basis points on Feb. 17, according to CMA DataVision prices. “The government of Dubai is likely to be able to generate some demand from institutional investors in this region and internationally,” said Chavan Bhogaita, head of credit research at National Bank of Abu Dhabi PJSC. “The key will be how much demand exists and at what price.” Investor Roadshow Dubai World’s advisers, AlixPartners LLP, Deutsche Bank AG and NM Rothschild & Sons Ltd. have drawn up alternative plans to repay the sukuk depending on whether Dubai’s fund agrees to provide Nakheel with between $1 billion and $2 billion this year, the bankers said. The Government of Dubai will hold meetings with fixed income and Islamic investors in Asia, the U.A.E. and Europe starting Oct. 22, according to a banker involved in the transaction. The government is canvassing investor interest in the Dubai Civil Aviation Authority’s plan to sell bonds and pay down $1 billion of debt maturing next month, two bankers familiar with the transaction said Oct. 18. Dubai and its state-related companies borrowed $80 billion to help transform the emirate into a financial services and tourist hub. The seizure of global credit markets sparked concern the emirate will be unable to repay some of its loans. DP World, Nakheel Dubai World said Oct. 15 it expects to save more than $800 million in three years after completing a reorganization and cutting 12,000 jobs. The Dubai government-owned company controls DP World Ltd. , the world’s fourth-biggest port operator, developer Nakheel PJSC, which is building palm-tree shaped islands off the emirate’s coast, as well as Economic Zones World, an operator of business parks like Jebel Ali Free Zone. Dubai World had $59 billion in liabilities at the end of last year and assets of $100 billion, Nakheel told Nasdaq Dubai Aug. 20. Some $18 billion of Dubai World’s debt is with companies such as DP World which have enough cashflow to service their debt, two bankers said. The remaining $22 billion is the concern, they said. “We have the right organization size now for the current market,” Jamal Majid Bin Thaniah , Dubai World’s chief executive officer, said in an interview Oct. 15. The company has no “intentions at this point in time to sell businesses within Dubai World.” Dubai World and its advisers are negotiating with its lenders, which number more than 70 and include Abu Dhabi Commercial Bank PJSC and Emirates NBD PJSC , its two biggest creditors, a person familiar with the situation said last week. Other lenders to Dubai World include Credit Suisse Group AG , HSBC Holdings PLC , Barclays PLC , Lloyds Banking Group PLC and Royal Bank of Scotland Group PLC , the person said. Representatives of Emirates NBD, HSBC, Credit Suisse, RBS and Lloyds declined to comment. Representatives for Abu Dhabi Commercial Bank and Barclays weren’t available to comment. To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net

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Dubai Shares Rise to 11-Month High on Bond-Sale Plan; Oman Stocks Advance

October 11, 2009

By Ayesha Daya Oct. 11 (Bloomberg) — Dubai shares soared to the highest since November after Emaar Properties PJSC’s chairman said the sheikhdom may raise a further $10 billion next month to help state-related companies through the credit crisis. Mohammed Alabbar, who also heads the government committee evaluating the impact of the global credit crisis on Dubai, told CNN in an interview on Oct. 9 the emirate may borrow the second tranche of a $20 billion fund in November. Emaar, the emirate’s biggest developer, rose to the highest intraday level since Nov. 10. Arabtec Holding PJSC rose to the highest in a year. The DFM General Index added 1.2 percent to 2,323.88 at 11:34 a.m. in Dubai, heading for the highest close since Nov. 11. “Alabbar’s disclosure is definitely helping the credit- worthiness of Dubai as well as furthering the cash-flow situation,” said Yazan Abdeen , a fund manager at ING Investment Management Dubai Ltd. “The real-estate problem will be solved with cash.” Dubai borrowed the first $10 billion by selling bonds to the U.A.E. central bank in February to help state-related companies facing problems raising cash amid the global credit crunch. Dubai, the second-biggest of seven sheikhdoms that make up the U.A.E., and its related companies borrowed more than $80 billion to transform the economy into a tourist and financial services hub. State-owned developer Nakheel PJSC, which is building palm-shaped islands off the emirate’s coast, needs to repay a $3.52 billion Islamic bond in December. Dubai Housing Dubai’s real-estate market was the worst affected by the global financial crisis. Home prices have tumbled about 50 percent from their peak, and may drop another 20 percent this year, Deutsche Bank AG said in June. The market’s collapse followed a construction boom that created thousands of homes just as demand began to evaporate. Emaar added 2.7 percent to 4.56 dirhams. Burj Dubai, the world’s tallest tower, will open Dec. 2 on the U.A.E.’s National Day, Alabbar said. Arabtec, the largest construction company in the U.A.E., gained 1.7 percent to 3.59 dirhams. Abu Dhabi’s gauge increased 1 percent, Qatar’s DSM 20 Index added 0.7 percent and Oman’s MSM30 Index rose 0.4 percent. Kuwait’s measure fell 0.3 percent and Bahrain’s benchmark index declined less than 0.1 percent. For Related News and Information: Middle East stock market news: NI ARABWRAP TOP stock market news: TOP STK On Gulf stock movers: TNI GULF MOV Global market map: MMAP Stories on Gulf stocks: TNI GULF STK World equity index monitor: WEI Today’s top regional news: TOP MIDEAST Most-read stock market stories: MNI STK

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