Thursday, May 27, 2010

You Said What?: Europe Can Learn Debt Management from Dubai

The following was reported in The National on 26 May.

European countries grappling with Greece’s financial crisis could learn from Dubai’s handling of its own debt problems, Sultan Ahmed bin Sulayem, the chairman of Dubai World, said yesterday.

The Dubai Government had intervened positively to provide a solution to the emirate’s debt problems and ensure no banks were in financial danger, Mr bin Sulayem said.

Dubai’s response to the financial crisis “should be adapted and learnt by the European countries in facing and tackling the crisis in Greece”, he said during a speech in Dubai yesterday.
From the Gulf News 27 May: "DIC Seeks Three-Month Repayment Delay".
"It is not a standstill. It is a request for extension of maturity,"  "The extension period would allow the implementation of a consensual longer term plan that would enable DIC to maximise the value of its business for the benefit of all its stakeholders,"

From the Financial Times 9 May:  Dubai Holding Advisers Engaged".

From Trade Arabia 26 May:  Dubai Holding Debt Restructuring "Risk Mounts"
"Dubai Holding is seen as the next subject of the emirate's debt restructuring programme which started with Dubai World in November, Saud Masud, head of research for the Middle East and North Africa at bank UBS, said in an interview.
'We believe Dubai Holding has roughly $15 billion in loans and bonds but this does not include any off balance liabilities arising from investor or end-user default on properties that have dramatically declined in 18 months,' Masud said."
From the Financial Times 27 May, Simeon Kerr reporting.

"Government cash flows remain meagre and analysts worry about its ability to raise more debt in the current environment. The banking system remains tight and in need of more liquidity to finance businesses and real estate projects.

UBS, for example, has said Dubai developers may need to raise another $11bn to finish semi-complete the real estate projects that haunt the city.

More hard work is necessary for Dubai to turn the corner."
If you decided to swim the Channel and had to be pulled out by the scruff of your neck in order to save your life, it's probably not a good idea to boast about your aquatic and athletic prowess.  If other members of your family are still flailing around in the water, it's probably an even better idea to avoid making similar comments about your family's skills.

2 comments:

Laocowboy2 said...

As time moves on, it would appear that the debt numbers (including payments due to contractors etc and contingent liabilities) of "Dubai Inc" are rather larger than thought a month or two ago (if not perhaps at the scary levels quoted by the rumour mills at the Sevens in December).

That is enough of a negative in iteslf give (a) the fall in the value of the assets that this leverage purchased and (b) the puny operational cah flows being generated. However to have such liabilities maturing at a time when even the best borrowers either find credit scarce or impossibly costly (hence all the pulled debt deals in recent weeks)is a real squeeze.

Unless and yntil the full picture is clear, the chances of raising "new money" from the market is close to zero. Even arranging an orderly refinancing/extension will be difficult unless existing lenders can be confident that everyone will be treated equally - no one wants to grant a three year extension only to see any avaiable cash generated being used to pay off another creditor in (say) two year's time.

Abu 'Arqala said...

Laocowboy2

Thanks.

I think both parties are in a box.

Banks may indeed not like to see other creditors paid off before them, but they've already accepted this principle in Dubai. Twice with the Nakheel bond. It will be hard to draw a line in the sand now.

For a variety of reasons (primarily recovery potential) the banks are unlikely to pursue a liquidation. And pushing the Shaykh to the wall may be considered unwise business practice in terms of the impact on regional welcome. That means they have to deal.

In that respect a base line template has been agreed - the DW deal. Both parties "know" what has sold in the past. Unless the economics are very very different or the royal personage wants to avoid embarrassment (and has access to the resources), we're probably headed for a similar deal.

From the good Shaykh's perspective, the ego damage has been done. The initial inept mis handling of the DW affair has dented the image already. A solution was agreed - which as we now know is a model for borrower's around the world. So applying the DW template here is yet another victory for the Vision of Dubai. In other words, maybe not much additional ego damage for the good Shaykh. And therefore less incentive for him to offer a better solution - unless the economics are different.

If I'm right (and often I am not), then this rescheduling may be less messy and take less time than the previous one.