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Looks like they're running up a big debt, real fast.
Bailout?
http://www.bloomberg.com/apps/news?pid=20601087&sid=a4sAgqSD_LIA&refer=worldwideOct. 13 (Bloomberg) -- Dubai may need help from Abu Dhabi and the United Arab Emirates government to finance a surge in borrowing that paid for the world's tallest tower, palm tree- shaped man-made islands and stakes in banks worldwide.
Dubai's ``potential reliance'' will be ``most significant'' in coming years, Moody's Investors Service said in a report today. Government-controlled companies owe at least $47 billion, more than Dubai's gross domestic product, and they will continue to accumulate debt at a faster pace than the economy grows, the New York-based rating firm said.
``These companies that are based in Dubai have become larger than Dubai itself,'' said Giyas Gokkent, chief economist at National Bank of Abu Dhabi, the U.A.E.'s second-largest commercial bank by assets. ``If anything were to go wrong with any of these companies, Dubai does not have the wherewithal to deal with it.''
State-owned Dubai World paid about $5.1 billion for almost 10 percent of Kirk Kerkorian's MGM Mirage last year; the price has tumbled since to $16.80 from $84. DP World, the government- run company that bought Peninsula and Oriental Steam Navigation Co. for $6.8 billion in 2006, has slumped 55 percent this year on the Dubai International Financial Exchange.
Ruler Sheikh Mohammed bin Rashid al-Maktoum has borrowed to replace Dubai's dwindling revenue from oil, investing to boost earnings from tourism and finance. State-owned carrier Emirates has increased its fleet to the largest in the Middle East, in a bid to double tourists per year to 15 million by 2015. Dubai Holding LLC, which groups assets belonging to Sheikh Mohammed, owns hotel chain Jumeirah Group.
Abu Dhabi Oil
Abu Dhabi, by contrast, owns more than 90 percent of the U.A.E.'s oil reserves, almost 8 percent of the world's total. The Abu Dhabi Investment Authority, its sovereign wealth fund, is the world's largest with assets of between $250 billion and $875 billion, according to the International Monetary Fund.
ADIA's Head of Media Relations Erik Portanger declined to comment on Moody's report.
Dubai's approach is backfiring as investors avoid the most indebted companies on concern the global credit crunch will increase defaults, while real-estate and company assets slump.
Deutsche Bank has fallen nearly 70 percent since Dubai government-owned DIFC Investments bought a 2.2 percent stake for about $1.8 billion in May 2007. Standard Chartered has declined 15 percent since state-owned Istithmar PJSC acquired a 2.7 percent stake for about $1 billion in October 2006.
The cost of insuring Dubai Holding's bonds has increased nearly four-fold since May, according to traders of credit default swaps. Credit-default swaps on Dubai Holding Commercial Operations traded at 679.3 basis points on Oct. 10, up from 172.99 at the beginning of May, CMA Datavision prices show.
The company's $500 million of 10-year notes due 2017 fell 2.2 percent today, raising the yield to a record 13.1 percent, Bloomberg data shows.
Dubai Model
While Dubai's economic model ``has proved successful to date, cumulative liabilities are currently rising faster than investments are able to generate returns,'' Moody's senior vice president in Dubai, Philipp Lotter, said in the report. This ``necessitates a clear understanding of wider implicit federal support when rating key government-backed corporation.''
Moody's expects a ``high level'' of support from Abu Dhabi for the ``most important'' publicly-owned companies in the U.A.E., Tristan Cooper, Moody's Middle East sovereign analyst, said in the report.
A spokesman for the Abu Dhabi government declined to comment on whether the emirate would assist its neighbor in meeting its debt obligations.
Abu Dhabi and Dubai are the two-largest emirates in the seven-member U.A.E. Dubai controls its economy through state- owned companies that dominate each major industry.
Mohammed Al Gergawi, chairman of Dubai Holding, and Sultan bin Sulayem, chairman of Dubai World, didn't answer their mobile phones when called for comment today.
`Unprecedented'
Abu Dhabi taking stakes in Dubai companies to help prop them up would be an ``unprecedented'' step ``that would have to be tested,'' Gokkent at the state-controlled National Bank of Abu Dhabi said in an interview. ``The Moody's debt numbers are conservative'' for Dubai, he said.
Dubai's benchmark stock index is down 44 percent as concerns over real-estate valuations and banks' access to capital weighed on investors.
``In most countries there are identifiable delineations between the public and private sectors,'' Cooper said in the report. ``In Dubai, however, the state corporatist model plus the fact that the ruler and his closest relatives form the core of the government make it difficult to draw such distinctions.''
Bailout?
http://money.cnn.com/2008/11/11/new...lout.fortune/index.htm?postversion=2008111108(Fortune Magazine) -- As soaring oil prices enriched the Persian Gulf region in recent years, the United Arab Emirate of Dubai became the embodiment of global exuberance. Now even this boomtown has fallen prey to the credit crisis.
Unlike most of its neighbors, Dubai has almost no oil or gas. So how did it thrive? Well, it had something better than hydrocarbons: a visionary ruler - Sheikh Mohammed bin Rashid al Maktoum. Sheikh Mo, as he is known to his admirers, understood that economic development requires three pillars - capital, competence, and ambition.
He drew capital largely from the fossil fuel wealth of neighboring states. The competence came via imported workers from around the world - don't bother speaking Arabic in Dubai. The cabdrivers are Pakistani and the architects British. The ambition was to make Dubai both a business hub and a billionaires' playground.
It worked. Oil revenues contribute less than 6% of Dubai's gross domestic product. Yet the city has the tallest building, the largest port, and the biggest airport in the world. Homegrown Emirates airline is flourishing. The billionaires have come, along with ordinary tourists - drawn by a relaxed attitude to Islamic norms, absurdly opulent hotels, and man-made islands.
But too-speedy growth always causes some indigestion. In Dubai, the oil money flooding the region stimulated a mighty property boom. Everything went up fast and chaotically: cranes, buildings, prices. Such was the froth that bankers in New York were turning a handsome profit using their bonuses to speculate on Dubai's luxury waterfront condos, buying one week and selling the next.
The oil money was augmented by loans from foreign banks. They considered the abundant oil reserves of Abu Dhabi, a fellow member of the United Arab Emirates, a sort of collateral. The price of oil was rising and Sheikh Mo's vision was mesmerizing. Dubai enterprises - almost all linked to the ruling family - could even afford a multibillion-dollar foreign-acquisition spree, snapping up ports operator Peninsular & Oriental and big stakes in the Nasdaq OMX (NDAQ) stock exchange.
But the credit crunch challenges all three pillars of Dubai's boom. The capital flow has reversed direction. Banks are pulling back from financing Dubai's glossy sand-into-dollars tricks, leaving dunes of debt to deal with: $50 billion, Moody's estimates, more than the emirate's 2006 gross domestic product. Almost half has to be refinanced within the next two years, according to J.P. Morgan Securities.
Dubai is not likely to face financial collapse, thanks to its oil-rich neighbors. The Central Bank of the United Arab Emirates has already made billions available in loans and lines of credit whose purpose was not clearly explained. Now that the price of oil has plunged, Dubai will have to finance more of its own growth.
With credit in short supply, some ambitious projects will fail, and skilled foreign workers could head home. Still, the squeeze might ultimately be good for the emirate's competence if the government focuses its more limited resources on infrastructure - as any visitor can attest, the city's own transport system is woeful - and tries to add some community to a place often described as soulless.
The ambition is still there, but Dubai now has a credible rival - its resource-rich brother an hour up the road. Abu Dhabi has tried to learn from Dubai's excesses. It is pointedly marketing itself to foreign investors as a cultural center and "sustainable" city. Abu Dhabi won't let its overeager sibling really crash and burn - that would cast doubts on its own competence - but it will grab more of the growth for itself
It's just that now it's flaws are financial as well...
