summarised from article by Anwer Sher
Dubai’s dream of progress and prosperity may well have been dented but its not a failed dream. In the context of the world economic crisis the crisis that Dubai faces is not as monumental as is being suggested. Dubai Worlds obligations are listed at $60 billion but these are obligations to contractors, suppliers and indeed bond holders and debt providers. A number of contractors and consultants have only recently indicated that they would be willing to take a haircut on their receivables, some suggesting as high as a 35% reduction in exchange for a payment plan. After all, the logic goes, that these contractors benefited with robust profits from the same clients in the good days and indeed are more accommodating as the times get rough.
However, we have to look beyond to how Dubai can survive this debt crunch.
The issue that needs to be addressed for Dubai is essentially $26 billion of debt for Dubai World, which is like a fly in the ointment at the moment. In essence the Dubai story is not over simply because a recovery in the region will bring focus back to the essential element that everyone asks. Where would you like to be based to do business in the Middle East? The answer is always going to be Dubai because of the investment it has made in the infrastructure, connectivity with the world, its airports and ports and most of all the UAE as a whole is a pretty safe place to be in. Yes its property market is dented, some believe taking as much as three years to repair itself, but its position as a financial hub, a tourist stop over and a traditional role as a commercial hub are not effected in any severe sense.
The most important thing Dubai must do is initiate a seven to ten year bond program, some of it supported by the government itself, and thus plug the gap between short term obligations and long term cash flows. To do this their handling of the current Sukuk crisis is important and will set the stage for restoring the dented confidence. Yes support can come from the Federal Government, as it has recently, or the Abu Dhabi controlled entities (as the recent $5 billion placement shows) and once goodwill is restored the ability to restructure may not be all that hard.
Interestingly, bankers here says that prior to the November 25th standstill announcement discussions with bankers on an over all approach were going very well. Infact some even felt that an over all restructuring of the debt was a foregone conclusion. Indeed a bad public relations gambit backfired it all and focus on a smaller piece of the debt became paramount. Now the task ahead is to get back to the same level of confidence that was there three weeks back and build from there.
In the realm of a three year period the over all position of Dubai will be considerably better, even though we only look at the GDP as an indicator we forget that a substantial part of their GRE holdings are overseas and these can, in a global turn around, be crown jewels can be sold off for a sizable profit. I believe the return to the enabling economy model where commerce, tourism and services will become the rock bed of the recovery that is highly possible.