IN A land seemingly built for the purposes of conspicuous consumption, Dubai never lacked extravagant icons of success.

The most extravagant – and most emblematic of the once sleepy fishing village’s transformation to oasis playground for the rich – were surely the palm tree and the sail.

In keeping with the tiny Gulf emirate’s grandiose vision, both were artificial. One was a set of man-made islands in the shape of palm trees and the other the sail-shaped Burj Al Arab, the world’s most expensive hotel.

Then there was the man-made harbour, the largest in the world, built at Jebel Ali while a free-trade zone was created around the port, catapulting Dubai into the league of major international business hubs.

Billing itself as a safe haven within a volatile region for investors and tourists alike, Dubai, which discovered oil in 1966, tripled its economy to US$34.5 billion (S$47.9 billion) in the 10 years to 2006 and achieved double-digit growth every year until the financial crisis struck.

Its expansion was relentless. By last year, foreign direct investment into Dubai totalled US$21 billion, according to the Financial Times.

The Gulf emirate established itself as the region’s trade and tourism hub, developing businesses such as port operator DP World that became leaders in their field.

It also set out to become a world-class financial centre, competing with the likes of New York and London and boasting an edge in the burgeoning area of Islamic finance.

In 2007, Dubai and Qatar became the two biggest shareholders of the London Stock Exchange, the third-largest bourse in the world.

Within its own borders, Dubai embarked on a massive six-year building boom that turned sand dunes into a glittering metropolis and the city into a magnet for the young, rich and glamorous.

No project was too lavish for Dubai. It is home to the world’s biggest shopping mall – the 1,200-shop Dubai Mall – and will have the world’s tallest building when the 160-storey Burj Dubai is completed next year at an estimated cost of US$1 billion.

The Burj Al Arab hotel was itself the tallest building in the world when it was completed in 1999. The hotel gave itself a seven-star rating – the first in the world – and watched as the publicity, room rates and bookings rocketed.

Dubai made the unthinkable possible with Ski Dubai, which opened in 2006 to offer the ultimate in luxury: skiing in the desert, on one of the world’s largest indoor ski slopes with fresh powder all year round.

Celebrities converged on Dubai’s sands, with David Beckham and Brad Pitt reportedly owning villas in the Palm Jumeirah development, the only one of three planned palm-tree shaped islands that has been completed.

The future of the other two Palm islands is now up in the air – much like that of Dubai itself.

Source: Straits Times, 28 Nov 2009

Saddled with a staggering US$59 billion in liabilities, Dubai World – the state-run investment firm behind Dubai’s sizzling growth over the past 20 years – wants to delay repaying its dues until end-May next year.

In a move that has stunned investor confidence across the Persian Gulf, possibly leading to the biggest sovereign default since Argentina in 2001, the Dubai government has said that it intends to reorganise the severely cash- strapped Dubai World, which is one of the emirate’s largest and most important conglomerates.

The US$59 billion debt owed by Dubai World is a large chunk of the US$80 billion accumulated by Dubai as it rapidly expanded in various sectors such as banking, transportation and real estate.

‘Dubai World has a portfolio of strategically important businesses and the restructuring will be designed to address financial obligations and improve business efficiency for the future,’ the government said in a terse statement explaining its decision, issued just hours before the start of the Eid al-Adha holiday and the United Arab Emirates national day celebrations, which will see the region shut down until Dec 6.

The five-paragraph note also said that the Dubai Financial Support Fund – which is responsible for disbursing US$10 billion in federal rescue funds to Dubai government-controlled entities – had appointed veteran bankruptcy expert Aidan Birkett, a managing partner overseeing corporate finance at accounting firm Deloitte, as Dubai World’s chief restructuring officer.

Markets across Europe reacted negatively to the news. The FTSE 100 index of leading British shares was down 99.84 points, or 1.9 per cent, at 5,264.97.

Over in Asia, the Shanghai index fell 119.19 points, or 3.6 per cent, to close at 3,170.98, its biggest one-day fall since Aug 31. In South Korea, shares in construction issues lost ground, with Samsung C&T leading the way with a 6.2 per cent decline.

Dubai’s announcement came after the closing of its stock market for the long holiday, but the value of Nakheel’s 2009 bonds slumped 27 per cent, according to EFG-Hermes regional investment bank. US markets were closed for the annual Thanksgiving holiday.

The request for a creditor standstill also applied to Dubai World’s subsidiary, Nakheel Development, which is behind a number of extravagant real estate developments including the city-state’s Palm Jumeirah, a man-made palm-shaped island housing hotels and luxury villas that count Hollywood actor Brad Pitt and footballer David Beckham on the list of owners.

Already, home prices in Dubai have fallen 50 per cent from their peak in 2008.

Dubai World is one of Dubai’s three biggest conglomerates together with Dubai Holding and the Investment Corporation of Dubai responsible for carrying out the emirate’s development strategies. Dubai World also owns DP World, the third-largest international ports operator.

Back in 2006, DP World won a three-month battle to take over British port operator Peninsular and Oriental Steam Navigation Company (P&O) after PSA Singapore withdrew its 470 pence-a-share bid, leaving DP World’s 520 pence-a- share bid as the only offer left on the table.

After the emirate’s years of rapid growth, the sense among analysts is that the weight of the global credit crunch and recession has finally caught up on Dubai’s ambitious economic model, one that is largely based on mega-construction projects and a huge influx of foreign capital.

Eckart Woertz, an economist with Dubai’s Gulf Research Centre, told the Financial Times: ‘This will destroy confidence in Dubai – the whole process has been so opaque and unfair to investors.’

Many are finding the news hard to swallow, particularly as senior Dubai officials had over the past few months taken steps to reassure investors that the emirate would still be able to meet all its existing debt obligations. Nakheel, for one, is due to pay back US$3.5 billion on a maturing Islamic bond on Dec 14.

According to latest data from Deutsche Bank, Dubai owes US$4.3 billion next month and a further US$4.9 billion in the first quarter of 2010 in government and corporate debt.

Earlier this year, Dubai raised US$10 billion in a bond issue that was taken up by the Abu Dhabi central bank.

On Wednesday, Dubai announced that it had raised a further US$5 billion from Abu Dhabi banks – much less than the US$20 billion it had been hoping to attract in foreign investment.

In a note, the Royal Bank of Scotland said that investors would now have to ‘reappraise the quality of sovereign support’ for state-owned entities in the region.

‘The other risk is that rating agencies would reassess their views of names in the region, which in many cases benefit from substantial rating premiums driven by assumptions about sovereign support, which is no longer a given.’

Standard & Poor’s (S&P) and Moody’s Investors Service immediately downgraded the ratings of all six government-related issuers in Dubai and left them open for a possible further downgrade. Moody’s cut ratings on some government-related entities to junk status, while S&P cut ratings on some entities to one level above junk.

Source: Business Times, 27 Nov 2009

City Developments Ltd (CDL) is studying news of a restructuring of Dubai World, which is a partner in a CDL-led consortium that will develop the landmark South Beach site in Singapore.

‘This is a new development and we will study this matter, in consultation with our other partners. If necessary, we will respond again in due course,’ a CDL spokeswoman said yesterday evening.

Construction of the 99-year leasehold project – which will have offices, luxury hotels, retail space and residences – has been delayed.

The Government of Dubai has announced its intention to restructure the emirate’s biggest corporate debtor. Dubai World would ask all providers of financing to itself and its affiliate Nakheel to ’stand still’ and extend maturities of the debt until at least May 30, 2010.

In 2007, CDL, Dubai World and El-Ad Group teamed up to buy the South Beach site for $1.69 billion at a Singapore government tender. In November last year, CDL announced a deferment of the project’s construction until construction costs eased.

CDL executive chairman Kwek Leng Beng said in August this year that construction is likely to begin around Q3 2010 with CDL and a new investor, Hong Kong developer Nan Fung, probably the ones that will pump in further money.

El-Ad and Dubai World are likely to be passive investors who may then see their share in the project diluted.

Nan Fung came into the picture in June this year when it subscribed for $205 million of five-year secured convertible notes under a refinancing exercise for a loan on the 3.5-hectare site. CDL also subscribed for the remaining $195 million of the notes.

The consortium refinanced an earlier $1.2 billion loan that matured in June this year by a combination of an $800 million two-year secured bank loan and the $400 million convertible notes.

In 2007, CDL subsidiary City e-Solutions inked a joint venture with Dubai World unit Istithmar to set up a chain of 30 budget hotels across South-east Asia over three years.

The US$50 million joint venture also included Tune Hotels.Com, which was to have developed and operated the hotels. Tune Hotels.Com is owned by the founders of the AirAsia budget airline.

City e-Solutions has since exited the joint venture.

Source: Business Times, 27 Nov 2009

Abu Dhabi is limiting construction to avoid the housing glut and price declines that battered the real estate market in neighbouring Dubai, Aldar Properties PJSC chief executive officer John Bullough says.

The emirate has a shortage of 15,000 to 20,000 units and the government will let the ‘rope out on development in a measured way’, Mr Bullough, whose company is the United Arab Emirates’ second-biggest developer, said in an interview. ‘There will be, in our view, a lag between supply and demand.’

Abu Dhabi, the UAE’s capital and holder of 8 per cent of the world’s oil reserves, controls development from homes to offices and transportation links under its ‘Plan 2030′, devised in 2007. The plan foresees the population growing to as much as 5 million by 2030 from an estimated 1.6 million in 2008.

‘There is a short-term question mark, but then there is a medium- to long-term suitability,’ Aldar CFO Shafqat Malik said in an interview last week at the company’s Abu Dhabi headquarters.

‘What we saw over here is the doubling of rents and prices. Is this a sustainable way for any economy to grow? The answer is probably no.’

Aldar said it plans to deliver 3,500 homes and 140,000 square metres of commercial space over the next 18-24 months.

Abu Dhabi’s government owns 18.9 per cent of Aldar through Mubadala Development Co and 7.2 per cent through state fund manager Abu Dhabi Investment Co, according to the emirate’s exchange.

Limiting supply ‘brings up the cost of housing and can be seen as an additional tax on companies’, Jesse Downs, director of research and advisory services at Dubai-based Landmark Advisory, said in a phone interview. ‘So it could potentially curb job growth, which has a residual effect on the real estate market.’

Abu Dhabi home prices have dropped an average of 33 per cent from their peak in the third quarter of 2008, according to Matthew Green, head of UAE research at CB Richard Ellis (CBRE) Group Inc.

Dubai’s residential property values have fallen more than 50 per cent and UBS AG said last week that they may decline as much as 30 per cent more.

‘We are not in the business of releasing and withholding units or regulating prices,’ Fouad Kassem, public affairs officer for Abu Dhabi’s Urban Planning Council said in a phone interview. ‘Our role is focused on planning, and proposed projects that don’t fit with the master plan are not allowed.’

Slowing down construction was easier in Abu Dhabi than Dubai because more projects were at the planning stage when the financial crisis hit and therefore easier to postpone, Mr Downs said.

Dubai is moving to tighten control of its own property supply through a planned merger of Emaar Properties PJSC, the country’s biggest developer, with state-controlled Dubai Properties LLC, Sama Dubai LLC and Tatweer LLC.

A housing shortage in Abu Dhabi won’t help lift prices because residents can commute from Dubai, which has an oversupply, Deutsche Bank AG said in note in June. The highway linking the two cities makes ‘both markets highly interconnected’, it said.

Dubai opened its property market to foreign investors in 2002, followed by Abu Dhabi three years later, fuelling a boom bolstered by low interest rates. Prices slumped at the onset of the global financial crisis as banks clamped down on mortgages, and speculators left the market.

‘We suffered from the same thing here as the rest of the world in terms of speculation and flipping,’ Mr Bullough said. ‘Those days are gone and there is a much more pragmatic focus to purchases. The dealers, it’s fair to say, have left the market.’

Property speculation in Abu Dhabi and Dubai caused institutional investors such as ING Groep NV’s US$150 billion real estate fund to shun the markets and prompted governments in both emirates to cap annual rent increases.

‘There has been a significant reprioritisation across the whole of the development community,’ Mr Bullough said. It ‘delayed delivery of a lot of what was in the pipeline, and that bodes well for the future because it means we will be able to maintain a more effective balance between supply and demand.’

Aldar postponed its Al Dana development, originally designed as a luxury project, and asked for a redesign to suit the needs of low-income buyers, Aldar’s chief operating officer Sami Asad said in February.

‘We see greater demand at the smaller scale, more affordable end of the market,’ Mr Bullough said. ‘That’s perfectly normal for any market. You have a much higher proportion of people who can afford a medium-sized place.’

Source: Business Times, 26 Nov 2009