DW global refinancing ‘costly’

Without the support of the government to postpone the payment of debt of Dubai World and Nakheel, Abu Dhabi have yet to save for re-financing in international markets will be more costly or impossible, according to the report.

Products to the high cost of capital, will be with the growth in economic activity, it would be difficult in light of the prevailing global environment, "said Eckart Woertz, economics, program manager, Gulf Research Center, Dubai-based independent research institution, in a report entitled "Implications of Dubai's Debt Troubles '.

Confidence in Abu Dhabi in the ongoing process of restructuring and will come with an increase in compensation, the report said.

While the housing sector still in trouble, and can not fulfill their promises, and Dubai has achieved a critical mass at the center of regional trade can be counted on the force, "said Woertz.

Data on total consolidated debt and government-owned companies has not been published in the report of the Gulf Research Center, said he was relying on estimates, which range between $ 80 and $ 100 billion of debt.

A wide range of estimates reveal a great deal of doubt, in view of Dubai's gross domestic product of $ 82 billion, and religion represents approximately 200 to 100 percent of GDP, depending on the estimate.

Dubai World (DW) total liabilities of $ 59 billion widely mentioned. However, this figure refers to the liabilities, not only religion but also the contractor's invoices or land-grant unpaid, according to Deutsche Bank.

However, without details, dry, and finally specifically that more than 26 billion dollars of debt will be restructured.

With regard to the burden of public debt in Dubai, and two factors of concern: first, the entitlement to unpaid debt is short term. Over the next three years, 50 billion U.S. dollars of debt owed, $ 12 - $ 1 billion in 2010, and a staggering $ 25 billion dollars in 2011 alone.

Dubai will have to refinance their debt at a cost much higher, as markets have reduced the implicit assumption of the government, the report said.

Secondly, there is a large amount of bad debt, which are not backed by assets or the most profitable business models, according to the report. Moody's estimates that bad debt could reach $ 25 billion.

Impact on business in Dubai, and credit risk Apart from the problems in the Deutsche, and markets are wondering if the credit risk can be translated to other companies in Dubai.

Real estate companies were in the heart of the problems and debt and dry they have a greater need for restructuring.

While the Dubai Holding also made a presentation on Dubai's property market, and debt maturity extends to the year 2017, an urgent problem in the least compared to determine the payment schedule in the short term Dubai companies, on average.

However, the default swaps rose to credit (146%) of all entities in Dubai, immediately after the announcement of suspension of dry and should be considered the most vulnerable, due to foreign investments through the use of a subsidiary of Dubai International Capital.

Pressure on the Dubai real estate market will continue, especially in the less attractive, the report said.

Compared with the real estate sector in crisis, and companies with the current cash flow and create a more flexible business models, according to the report.

Real estate bubble in Dubai, which is also unique in the region - began many of the local population to copy, but later, he was lucky to be in late. There is certainly a statement of Gulf investors to invest in Dubai, but the right of the transmission of the debt crisis in Dubai is unlikely, because oil prices were fairly good about $ 75 dollars a barrel.

Dubai International Financial Center may be at a disadvantage. The financial sector is particularly affected by the global crisis, and the image of Dubai as a financial center has severely distorted the debt of a series of dry.

Impact on banks in the UAE is difficult to measure, because most of the exposure is likely to be in the form of bilateral loans that are not public domain.

National Bank of Abu Dhabi (Abu Dhabi National Bank) is the only bank in the UAE has made the official announcement about having a total of $ 5 million to Dubai World.

The role of Abu Dhabi and the increased centralization of the State of United Arab Emirates

Dubai in access to international capital markets has abated, you will have to rely increasingly on Abu Dhabi, in addition to the measures necessary for the restructuring.

Despite its support on several occasions earlier this year, Abu Dhabi, has been unwilling to lend a helping hand to dry and palm, for a moment.

An unnamed official from Abu Dhabi, told Reuters in Abu Dhabi, and Dubai to support "on a case by case basis" and that he will "choose" that the companies are compatible.

Support from Abu Dhabi to Dubai in the current financial crisis is a selective and non-conditional.

Abu Dhabi shows its willingness to practice tough love and restructuring of businesses in Dubai who are currently not possible or not in conformity with the plans of their own development in general and the UAE.

Although still committed to the bailout plan selectivity, which does not seem willing to pay the bill himself. It is ready to accept great risk to the reputation of Dubai UAE as a whole, and left Dubai walk the thin from debt restructuring and default, and make international investors and some of the burden.

Conclusion

The debt situation in Dubai requires a decisive restructuring, particularly in the housing sector in crisis, and the report said the Gulf Research Center.

Compared with other countries in the Middle East, Dubai has a competitive advantage in terms of infrastructure, lifestyle and business facilitation. It also has a role to play successfully as a center for regional trade, provided that they can escape from the abundance of the past.

Oil revenue in Dubai, and the impact of financial crisis, and the financing of development efforts based on more than the United Arab Emirates Abu Dhabi in the past, Woertz said in the report.

Ambitious development goals of the State, and its willingness to play a more visible role in international affairs, and requires a more centralized planning and institutional development.

Instead of seeking to buy stocks is rumored study, Abu Dhabi, perhaps in an attempt to reach a consensus to increase the concentration of responsibilities in the federal financial support for continuing to Dubai and other emirates, the report concluded.

Is Dubai the first domino in a second financial crisis?

While Iceland’s transformation from fishing nation to financial powerhouse – and back – became a potent symbol of the banking boom and bust of the past few years, the Middle Eastern emirate of Dubai was where the global property bubble was taken to its glitziest extreme.

Without the oil reserves of many of their neighbours, Dubai’s rulers hatched a hubristic plan to turn their city-state in the sand into a glamorous playground for the rich, enthusiastically bankrolled by western investors.

Now, with the state-owned builder of many of Dubai’s most extravagant projects struggling to repay its debts, the world’s financial markets have been forced to wake up to the idea that they may have declared an end to the turmoil of the credit crunch too soon.

Stock markets have soared over the past eight months as investors shrugged off fears that the near-death experience of the world’s financial system when Wall Street bank Lehman Brothers collapsed in October 2008 would lead to a 21st-century great depression. But Dubai’s woes this week were a sharp reminder that there may be plenty more unexploded bombs hidden in the world economy. First, Dubai’s authorities are not alone – a string of other states, including Greece, Ukraine and Ireland, face severe debt problems in the months and years ahead as they tackle the costs of the worst recession in a generation at the same time as clearing up the debris from a rampant credit boom.

The International Monetary Fund has already stepped in to bail out several struggling states, including Iceland, Hungary and Pakistan, but Dubai World’s announcement raised the fear of a new wave of victims emerging.

Second, the economic slump is not over. While many major economies, including the US, Germany and Japan, have come out of recession, recovery has so far been aided by vast emergency infusions of taxpayers’ cash. No one is sure what will happen when those life-support measures are removed next year and central banks begin to shut off low-cost lifelines to banks and raise interest rates.

And third, if Dubai World does default, it will send fresh shockwaves through the world’s financial system. International banks – including the UK’s – have lent Dubai and its firms billions of dollars to fund its glittering glass towers and indoor ski slopes in the desert. The risk that many of those loans may now go sour has reawakened nagging concerns that even after government-backed rescue packages worth trillions of dollars, the worst may not be over for the bombed-out banks. Germany’s Bundesbank warned earlier this week that its banks may face a further €90bn in writedowns on bad loans before the crisis is over.

Uncertainty about whether Dubai World would actually be forced to default, and how much of their money lenders would get back, were exacerbated by the fact that financial markets in Dubai were closed for the Muslim festival of Eid al-Adha. To complicate matters further, the debts were taken out as Islamic bonds, known as sukuks, and the rules about what happens if the borrower fails to pay them back are hazy.

Investors hope Dubai will be bailed out by neighbouring Abu Dhabi, the United Arab Emirates capital – though it is not clear what that might mean for the autonomy of Dubai’s ruler, Sheikh Mohammed Bin Rashid al-Maktoum, famous for breeding and racing thoroughbred horses, and for his £10bn fortune.

But whether Dubai is the first domino to fall in a new wave of the global financial crisis or, as some commentators argued today, just a small city-state whose struggles have few implications for the rest of the world, its frozen cranes, empty skyscrapers and bankrupt expatriates are a powerful parable of what happens when a property boom gets badly out of control.

Dubai’s romantic past as a sleepy fishing and pearling port has all but gone and nowadays the wooden abras that ferry passengers across its famous creek are dwarfed by banks and investment companies. The richest and most populous of the seven states of the United Arab Emirates, it has an economy second in size only to regional giant Saudi Arabia.

Footballers and film stars have sprinkled stardust on its arid landscape, buying up villas on exclusive developments such as the extraordinary Palm Jumeirah, a lagoon of man-made islands surrounded by an azure sea. Owners there include David Beckham and a clutch of Premier League stars, Afghan president Hamid Karzai, Russian oligarchs, many rich Indians and some well-connected Iranians.

Leisure opportunities in the “Paris of the Middle East” include some of the biggest and busiest shopping malls on the planet. Westerners enjoy a far freer lifestyle than elsewhere in the Gulf, though the recent experience of the British couple caught having sex was a reminder that there are still cultural taboos to be observed.

Parts of the city have a distinctly subcontinental feel that recalls the old joke about the UAE: “Emirates stands for English-Managed, Indian-Run, Arabs Taking Enormous Salaries.”

In the good years, the cash poured in, spilling over from the oil-rich states of the Middle East, as sky-high oil prices and strong global growth created windfalls for many of its Gulf neighbours, and from the frenzied deal-making in the international financial markets.

The scale of the resulting building boom was extraordinary, sucking in hundreds of thousands of poorly-paid foreign workers and sending property prices in the desert playground sky-high. Long after the sub-prime crisis began in the United States and spread to much of the rest of the world, the emirate responded with its trademark self-confidence – reckless over-confidence to its critics. It was just over a year ago, as the global financial shadows began to lengthen, that Sultan Ahmed Bin Sulayem, the DW chairman, boasted: “Dubai has a vision like no other place on Earth.”

The claim came as Nakheel, the DW property arm, unveiled plans to build the world’s tallest tower, with more than 200 floors – beating its nearest rival, the existing Burj Dubai tower, still under construction and due to open next January.

Nakheel, represented by a slick international PR team, was quick to brush aside fears that the emirate would be infected by the coming recession, insisting that fundamentals remained sound and that returns from overseas investment funds would perform better than oil revenues.

So instead of retreat, Dubai carried on partying. And some even saw a silver lining in the gathering clouds, predicting that leaner times for Dubai would reduce the number of expatriates and help re-establish a sense of national identity.

“We have been bombarded with the tallest, the best, the largest, for the past few years,” said Professor Abdelkhaleq Abdullah of Emirates University. “The novelty has gone.”

But over the past year it has become increasingly clear that the party is over: property prices have fallen by 40-50% from 2007-08 highs and are expected to slide by another 20%. Unemployed Indian workers have left in their tens of thousands while stories of expensive new cars abandoned at the airport by bankrupt foreigners have become the stuff of folklore.

Many high-profile celebrities have holiday homes in Dubai. The actors Brad Pitt and Denzel Washington as well as the supermodel Naomi Cambell (below), are all rumoured to own properties on Dubai’s super-exclusive Palm Jumeirah, one of the three constructed Palm Islands in the Persian Gulf.

The developer behind the Palm Jumeirah scheme is Nakheel, whose parent company is Dubai World.

Residents saw their investments collapse this year as Dubai’s property bubble burst and now they could be fearing their properties will be devalued yet further.

Investors are also concerned that Nakheel will not be able to afford to finish work on Palm Jumeirah and its other projects, which will leave a lot of Dubai resembling a building site.

A number of footballers have invested in the area. David Beckham, Michael Owen, David James and Kieron Dyer have reportedly got homes there. The Chelsea and England player Joe Cole had a villa but he sold his property for about $3.5m in the summer, just before Dubai’s property bubble burst.This will also be bad news for a number of UK engineering consultants who are owed money in Dubai. Nelson Ogunshakin, head of the Association of Consulting Engineers (ACE) says UK engineers working in the UAE are owed around £250m.

Banks have also invested heavily in the area. According to the Emirates Bank Association, HSBC has $17bn invested in UAE, Standard Chartered has $7.8bn, Barclays has $3.6bn and has . RBS $2.2bn. Citigroup also has $1.9bn in the UAE whilst BNP Paribas $1.7bn and Lloyds has $1.6bn.

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big fall out from this felt all over the world..if dubai is in trouble who else is hiding something?

http://www.guardian.co.uk/world/2009/nov/26/dubai-first-domino-new-crash