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Sat 17 Sep 2011 03:38 PM

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Total disclosure is the key to Dubai's recovery

Nakheel's admittance of a $21bn writedown could be a sign of changing times, writes Ed Attwood

Total disclosure is the key to Dubai's recovery
Nakheel wrote off a hefty $21bn due to the collapse in local property values post-Dubai World

The headlines last week may not have made particularly pleasant reading for Nakheel executives, even though they must have been expecting it. In the firm’s Islamic bond prospectus, Nakheel told potential investors that it had written off a hefty $21bn due to the collapse in local property values post-Dubai World.

While the media attention has focused, perhaps unsurprisingly, on the $21bn figure, the truth is that this actually spells pretty good news for Nakheel going forward. If there’s one thing from which investors will run screaming, that’s a lack of accountability.

In March last year, I spoke to Jan Plantagie, the regional head of Standard & Poor’s. At the time, his firm was in the spotlight after Dubai Holding Commercial Operations Group (DHCOG) – which oversees, amongst others, the Jumeirah Group, Dubai Properties Group and Tecom – dropped its relationship with the ratings agency after a disagreement over transparency.

Recalling the Dubai World debt restructuring announcement in November 2009, and the agency’s attempts to find out more information, Plantagie’s comments were telling. “We were trying to speak with everyone from high to low - at the low level they were just as surprised as we were,” he said.

“At the high level, we couldn’t reach people. Some people wouldn’t comment - and it’s on that basis that you have to make your assessments.”

“With the benefit of hindsight many things could have been viewed differently, including assumptions on government support,” Plantagie continued. “Having said that, clear statements from the top never gave rise to the suspicion that support would not be forthcoming.”

While it may be trite to trot out the old ‘how things have changed’ mantra, it’s worth pointing out that Nakheel has had to face down an almighty barrage of justified criticism from its customers, its contractors and its suppliers – not to mention the considerable opprobrium in the international press.

For two years, the firm’s reputation was kicked from pillar to post, as every new creditor pronouncement was greeted with derision.

Restructuring any company is never an easy task. But when the process is as complicated as it has been with Nakheel, and conducted in the full glare of the media spotlight, it’s harder still.

While homeowners and buyers of houses that are yet to be built will understandably disagree, it’s finally time for Nakheel to begin the process of looking forward once again.

The evidence of that is in the Islamic bond prospectus, which clearly shows that the company is moving away from relying on frenetic sales in offplan developments to following the path trodden by Emaar in focusing on regular income-generating assets such as malls and rents. Don’t be surprised if Nakheel also dips its toes back into the hospitality market in the medium term.

A similar amount of attention was afforded a report by Citigroup last week, which calculated that the UAE had cancelled or delayed $170bn worth of construction projects, accounting for 56 percent of cancellations across the main Middle East and North Africa markets. The devil of this report, however, was in the detail. The UAE also announced $1.2bn worth of new projects in August alone, raising its construction pipeline by five percent to $175bn.

Again, the truth may not be exactly pretty, but further transparency as to exactly which projects will not be proceeding has been a long time in coming. If RERA can now confirm exactly which Dubai projects have been cancelled, that should be another shot in the arm for the local property sector.

Ed Attwood is the Deputy Editor of Arabian Business.

We Are The People 8 years ago

There are so many wrong things with Nakheel behavior you just do not know where to begin. Just ask those who paid for projects that Nakheel cancelled or delayed and ask them if this is good news to Nakheel or bad news for the investors? Still, Nakheel is far from being a responsible company.

John 8 years ago

The only way for Nakheel to every recover is to rebrand, park its toxic assets in a "bad" company and harvest the rich seam of gold which still exists in its Palm etc. developments. Nakheel, Achilles Heel of Dubai property imagery.

Jag 8 years ago

Nakheel WAS the reason that took down Dubai Real Estate.

Stupidity in overbuilding is excusable.... not returning full refund of investor advances against cancelled projects is NOT.

Samuel 8 years ago

Impetuous investors also must be blamed, did you really have to invest in a property that did not exist except on paper?

Southern Hoosier 8 years ago

I believe the building boom in Dubai was fueled from American aid pouring into Iraq and Afghanistan. Now that America is drawing down in Iraq and Afghanistan, the money is drying up.
It's sure not coming back to America.

Toby 8 years ago

They even manage to turn one of their rare successes into a defeat. The Gardens, it was a beautiful and very affordable place to live, now it is neither. The trees and plants are dying because Nakheel have reduced the gardening team to a handful of people, and they lavish all their attention on the Ibn Battuta Mall. In a years time greenery will have all died. Many of the apartments are empty because they increased the rents, during a recession, higher than the market rate.

Red Snappa 8 years ago

As this article is about transparency, the simple facts of the matter were that Nakheel was constantly trying to devise bigger and better projects without considering the consequences. Why three Palms when you haven't successfully completed one? Who was driving them to do that?

The previous Chairman had a simply massive and untenable remit including Dubai Ports, also a major contributor to the economy.

Nakheel has restructured its debts, now it has to become a successful, profitable developer in order to repay those debts. The residential market is saturated, although Jumeirah Village might compete with the Springs, as is the commercial office market. Experts are now saying there is no scope for any more large retail malls. The article mentions a move into hospitality but building more hotels cannot be an option right now, unless they're budget hotels. Mr. Kerzner wants to sell off his share of Atlantis maybe Nakheel buys that stake, it's on the Palm! Strategy post-restructure?

James 8 years ago

A sign of transparency, accountability, and ethical business practice would be to announce that Nakheel will continue to be bound to the Dubai World Special Tribunal at the DIFC Courts. People who have a proper claim against Nakheel should be entitled to justice, and the Special Tribunal has done a good job to date. But now there is uncertainty as to whether it will be allowed to continue. My bet is that we will soon hear that in future claimants will have to go through the local courts. Any foreigner who has ever gone through the local courts knows very well what is involved!

Khalid Mahmood 8 years ago

I wonder what happens to the investments where the building is 80 % complete , and payments already made as per progress but the developer closes doors and leaves UAE. The telephone has a message to contact them by E-mail or through Post Box , but no response is received. The project was duly registered with Land department.The master developer is Nakheel also in this case.