Sunday, 14 February 2010

Dubai World: Deconstructing Peter Mandelson's "Time is Running Out"

The "Doomsday" Clock

I had missed this howler until just now.  And probably just as good.  AA is still on double not so secret probation imposed by Umm Arqala over the trivial matter of some Turkish coffee on "her" carpet.  Quite unreasonably she refused my perfectly cogent explanation that S&P wasn't doing its job properly and that all sorts of consequences flowed from that.  Including Turkish coffee.  So, absent a Turkish coffee in my hand, I can laugh uproariously without the danger of another spill.
"Time is running out," Mandelson told delegates at a lunch hosted for British business in the emirate. "The current uncertainties and lack of agreement can't go on for much longer. As we approach decisions, Dubai has to be as open as possible on talks with banks and construction companies."
These fearsome words conjure up the most dire scenarios.  It's the World Cup last minute.  Our team  (Arsenal of course) has the ball but will they score?  (Of course, they will!).   It's a minute to Midnight and Cinderella has only a few seconds more to impress the Prince before that golden coach turns into a pumpkin. The inmate on death row is just seconds away from walking the "Last Mile".  Will the Governor call with a pardon?  Time is indeed running out in these scenarios.

But Abu Arqala is having a hard time picturing the dire consequences to Dubai World and the Emirate from taking a bit more time.  Or their coming up with painful (for the banks) rescheduling terms.

Let's see.  
  1. It's not like they're looking for new money.  They've already got the banks' money.  Lots of it.  Really lots of it.   
  2. Even if they do a deal, it's unlikely that banks and investors will be rushing all over themselves to punt again in Dubai at least in the near term. 
  3. If they do a deal with a haircut (and even one for much much less than 40%), banks and investors are likely to be shy for several years.  But not to worry: a bit of good press, the passage of some years, combined with the financial market's capacity for unbounded amnesia, and the cash will flow again.
  4. Probably the marginal damage to reputation will be slight.  Team Dubai has already scored more than one "own goal" in the saga to date. 
  5. It's highly unlikely that banks will lodge a petition for involuntary liquidation at the DIFC, though perhaps they should consider this. 
What then is the realistic danger that DW is exposing itself to?  What will happen if things go on as they are for a bit longer?

A stern letter from the BBA (British Bankers Association) to Peter?  An outcome perhaps not to be lightly dismissed as those who recall the BBA's earlier letter in re Saad and AlGosaibi.  Officials in Riyadh have yet to fully recover from the earthquake that caused.  Come to think of it, I wonder if the BBA will write to Umm Arqala in the matter of S&P's fault for the Turkish coffee stain?

On a more serious note, the tenor of Peter's comments reflects some real concerns from bankers - at least those from the United Kingdom.

As a member of the HM Government, Peter no doubt chooses his words carefully.  And since he's not directly a party to the negotiations must rely on what he is told.  If indeed he is using diplomatic speak, then the language is also muted.  But we can try to read between the lines.

When he says Dubai needs to be "as open as possible", it's a clear indication that the banks don't think Dubai is currently being forthright in discussions.

When he refers to "construction companies" as well as banks, it's clear that UK construction companies have significant exposure to DW.   If they had but minimum outstandings, there would be no real need to make a point of mentioning them.

And when he speaks of "lack of agreement" one might infer that there have been some sharp discussions between the banks and DW with the latter perhaps thinking that what DW is proposing doesn't reflect a fair deal.  This is similar to descriptions of political meetings as involving "frank exchanges of views."

On that last point, having made bone-headed loans, banks are now looking for someone to bail  them out (a fine and much honored tradition especially of those who profess to be rugged capitalists).   The first place they look is at shareholders.  Next I suppose is the Shaykh up the road in Abu Dhabi.  I sense an appeal to the implicit guarantee.

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