Dubai debt crisis will increase transparency - DIFC's Saidi

MORE TRANSPARENT: DIFC's chief economist says that the debt crisis will make Dubai's state owned companies more 'transparent'. (Getty Images)

Dubai’s debt crisis will make state owned companies in the city state more transparent, said Nasser Saidi, the chief economist of the Dubai International Financial Centre.

Speaking during a panel discussion hosted by Bloomberg News, in Dubai, Saidi said: “The region never faced a crisis like this. This is really going to be giving an impetus for change and reform.

“Greater clarity I think will come out of this in terms of the ownership, who owns what and what they do.”

On December 14, Abu Dhabi provided $10bn to help the state owned Dubai World avoid defaulting on a $4.1bn bond payment. Dubai World roiled markets worldwide when it said December 1 it was in talks with creditors to restructure $26bn of debt.

Abu Dhabi is the largest of the seven sheikhdoms in the UAE and has more than 90 percent of its oil reserves, the world’s sixth largest.

Dubai, the second largest emirate, borrowed $80bn to diversify away from dwindling oil supplies and build itself into a financial and tourism hub.

The remaining $22bn of debt held by Dubai World will require restructuring in the framework of a new bankruptcy law, said Farouk Soussa, a Standard & Poor’s credit analyst.

He said: “The rest of the $22bn that remains within Dubai World is still being restructured and to top it all off, we’re actually putting in place a legal framework for dealing with insolvency should it come to that.”

Soussa said December 8 that the restructuring process would “obviously” include discussion over the sale of assets.

Dubai World may sell assets in the UAE and abroad to repay its borrowings, Abdulrahman Al Saleh, director general of Dubai’s Department of Finance and head of the government fund that’s leading the Dubai World renegotiation, said December 6.

Dubai World owns Nakheel, the property unit that issued the $4.1bn bond and is building palm tree shaped islands off the coast.

The bond was partly secured on the now abandoned Dubai Waterfront project, a barren strip of wasteland which was to be a development twice the size of Hong Kong Island, according to the offering’s prospectus.

Dubai World also owns 80 percent of DP World Ltd, the world’s fourth biggest port operator, and the Jebel Ali Free Zone, a business park adjoining its flagship Jebel Ali port in Dubai.

Its Istithmar division bought New York luxury retailer Barneys in 2007 for $942.3m, while Dubai World itself acquired a $5.1bn stake in US casino company MGM Mirage in 2008.

Dubai’s debt difficulties will persist into 2010 and 2011. Dubai must repay at least $55bn in the next three years, Goldman Sachs Group Inc said December 13.

John Sfakianakis, chief economist at Banque Saudi Fransi, Riyadh, said: “Definitely the Dubai model is based on exuberance based on available liquidity that the global financial system provided for some time.

“Some debt is good, but not a lot of debt. This is what Dubai is finding out in a difficult way.”

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Sorry for them.
Posted by jjp, Berlin, Germany on Monday 21 December 2009 at 07:34 UAE time
Edited by ArabianBusiness.com

Construction is not such easy task it seems.
Frm workers to architect, any lack of proficiency results one day or another in project's discrepancy with standards, whatever the field of finance, planning, execution, and of course and worse aspect of maintenance for building at his initial level of expectation.

The boss of certain companies are not letting the people with knowledge share anything, so indeed, they shall be mislead as only money rules then, thinking it is the sole power. It is not.

God bless the sand.

Excellent question my friend Etisalgood
Posted by Aamir, Dubai, UAE on Sunday 20 December 2009 at 09:10 UAE time
Edited by ArabianBusiness.com

In my humble opinion there are three reasons why the situation has come to such a pass:

1. The rulers of Dubai were mislead/wrongly advised by a few so called experts.

2. These entities were lead by inexperienced people at the top who did not ask the right questions.

3. Incompetent people were hired to oversee/execute the projects (right from concept, planning, selling, execution etc).

You will understand what I am saying, if you happen to interact with these companies.

Debt woes
Posted by Etisalgood, Dubai, UAE on Thursday 17 December 2009 at 09:47 UAE time
Edited by ArabianBusiness.com

Hindsight is 20/20 and debt is good, but I don't understand why Dubai didn't align its debt profile to match its objectives and expected returns.

Why did Dubai take on so much short-term debt to finance complicated long-haul projects that involved dredging and reclamation of land (such as the 3 Palm Islands, The World, Dubai Waterfront, the Arabian Canal).

Didn't they realize this debt would come due before these projects ever came online?

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM