By Shane McGinley
Gov't economic advisor said funds for multi-billion-dollar projects can be sourced within UAE
Dubai will not have to depend on global financial markets to fund large-scale projects announced within the last few weeks as it has access to sufficient funding from within the UAE, the head of Dubai Economic Council told reporters on Wednesday.
Dubai's ruler, Sheikh Mohammed bin Rashid Al Maktoum, unveiled plans last week for Emaar Properties and conglomerate Dubai Holding to build Mohammed Bin Rashid City, a complex consisting of 100 hotels, the world's biggest shopping mall and a Universal Studios theme park.
This was followed on Monday by an announcement that Dubai planned to build an AED10bn (US$2.7bn) complex of five theme parks.
Despite a number of high-profile developments remaining unfinished in the wake of the economic downturn in 2008, Hani Al Hamli, secretary general of Dubai Economic Council, said Dubai had access to funding to finance these new projects.
“We do have our own resources and way to finance… We are sure that these projects will be achieved,” he said.
When pushed on where these funds would come from, Al Hamli did not go into specifics, commenting that financing would occur via sources within the UAE.
“We have our own resources in the emirates. I don’t want to disclose… This is managed by the finance department.
“When it comes to resources, we are part of the UAE and we have our own networks… There [are] neighbours who have massive natural resources. At the end of the day, [in] the UAE there is solidarity and a good governance and leadership,” he said.
In contrast to its oil-rich neighbour Abu Dhabi, Dubai's government does not have the large fiscal reserves needed to finance large-scale projects.
During the downturn, when the Dubai real estate bubble burst and prices slumped around 60 percent and development finance dried up, Dubai was forced to take a last-minute US$10bn bailout from Abu Dhabi to avoid a bond default at a state-linked developer.
"Abu Dhabi or some of its companies may be part of this mega development," an Abu Dhabi government official, who did not wish to be identified, told Reuters. “It is early days, let's wait for the devil in the details."
The recent large-scale government announcements close a year in which a number of prominent projects were unveiled, including the AED1.5bn (US$408m) Business Bay Canal project, the Dubai Modern Art Museum and Opera House District and the refurbishment of the Port Rashid terminal into an attraction centred around the QE2 ocean liner.
Many of these plans are projected to move forward straight away, but come in the midst of reports from the International Monetary Fund (IMF) which estimate that Dubai's government-linked entities will need to repay about US$9.4bn of maturing bonds and syndicated loans in 2013 and US$31bn - much of it loans that were extended during the crisis - in 2014.
Looking at the opportunities outside the UAE, World Bank economists speaking on Wednesday had mixed feelings about how the current global crises in the eurozone and the US will impact the potential for the UAE to source financing overseas.
“The world economy is very weak and you have to look at it in the proper context. You have the crisis in Europe and the risk of a fiscal cliff in the US, so there are uncertainties. If the US goes into recession it will impact the global economy in a very significant way,” Ndiame Diop, a lead economist at the World Bank, told reporters.
When asked whether this would impact Dubai’s ability to get financing internationally, he answered “absolutely”.
Farrukh Iqbal, director of the Middle East and North African region at the World Bank, was more upbeat: “Yes, there was a stumble but a recovery is happening and a few lessons have been learnt…keeping more control on what kinds of projects can be supported and how much bank lending there should be.
“In general, global liquidity seems to be in a reasonable position. The banks have a lot of money. They have become conservative because of their experiences, and that is fine too… They will all have to take each individual project and look at it carefully and look at the overall balance of the risk-and-reward situation and make decisions,” he added.
Al Hamli said he was confident “the people in charge from the two big developers, Emaar and Dubai Holding, they have a clear agenda on that.
“Otherwise, don’t announce if you don’t have anything… With companies related to the government, I am sure there is a way of funding at a good interest rate and maturity,” he concluded.
If RERA is sitting on something close to 7 billion USD in different escrows accounts of delayed/cancelled projects, with interests running for 3 years... that is a lot of money and good collateral.
There is still no signs of these moneys being handed over to the original owners. Then you have a ll the security deposits from all brokers renting or selling properties, how much it could be? another 200 Millions? so funds are there.
Therefore, the only internal financial resources that can be turned to are the banks, profits from existing business sectors, asset sales and high net worth investors.
For a start new central bank regulations now require lenders to limit their exposure to UAE state entities. There is also the question, at the risk of sounding repetitive, of the $48 billion of restructured debt that is to be repaid between 2014 and 2016 according to Standard Chartered's report. The consolidated cost of the giga-projects thus far, has simple got to represent triple-digit billions of dollars.
Indeed, there is recourse to Abu Dhabi, as an oil-producer under advice from the IMF to reduce its public expenditure to stave off a potential budget deficit in 2017, as the oil price needed to sustain an inflated budget will double. Indeed Abu Dhabi may agree to reschedule the US$ 20 billion as SC's report, as I recall part of this was funded by banks.
In a nutshell, those "own resources" are not at all obvious.
Was told by AD finance official that billions are being pumped into Dubai.This explains a lot, nothing wrong with investing in your own backyard and pumping billions into your own economy, creating jobs for nationals. Win- Win for the UAE
If they have so much cash to start new projects maybe they can throw a few million Dirhams to the stalled Sports City sub-developers to kick start that project and complete it over the next few years. Would it make sense to complete at least 1 of the previous announced projects????
If the funds are not there and "new mega projects" are hot air, then fine - no change.
If funds are there as this official asserts, then PLEASE can us contractors ans suppliers still owed (in our case) tens of millions by govt related entities for years, PLEASE BE PAID!
If they can fund new projects then, surely, their creditors are going to play hard ball to get their money back on the old projects and not accept cents on the dollar as various government entities would prefer them to do?
Dubai is developed country having its own resources and all technologies at its disposal . The mega projects should use Dubai ,s own companies and local infrastructural ,rather paying huge sums of money to the foreign consulting firms and contractor . Now it is the Time for Dubai to use its own contracting companies and engineering firms to construct the mega projects
Funds may be there but how about finishing off so many of the half build projects already In existence??!! It doesn't make sense to build new mega projects but to get to them you have to drive past the half finished buildings with no funding to get finished.
Saddened to see Malls for pleasure / tourism get priority over sports facilities, UAE has a huge issue with obesity and diabetes so more mega malls won't help. Sure more community malls are needed, the Arena Mall at sports city for instance would be a huge asset to that area if the on hold project were to restart, but seriously put some money into finishing the swimming pool at sports city and the stadiums to look after the health of your population otherwise the lowered life expectancy from obesity will catch up and the youth will become lazy theme park goers that just spend their time in malls.
Great to see progress but investors lost thousands in the Dubai crash, it would nice for them to get their projects moving again.
All local construction companies have foreigners in the management and ALL labourers are foreigners. So, what are you talking about...
Are they serious ?
The road outside my warehouse in Al Quoz has been dug up and left open dangerously for over three years. If they have the money how about completing it please before digging up more areas just to leave them incomplete ?
And Yes , how about paying off the old creditors ?
But I guess there are enough greedy people still left in the world who will get start struck with these mega projects and want to have a slice of it in spite of past history staring them in the face. Best of luck to them.