There's been some commentary on the princely interest rate that Nakheel was reported to be offering its trade creditors - 10% - compared to the much smaller 1% to financial creditors.
This article from Maktoob Business outlines the rationale.
It's all a matter of devoting resources to those parties that benefit the company and the national economy the most.
Simply put there is more bang for the buck locally in paying our trade creditors.
Simply put there is more bang for the buck locally in paying our trade creditors.
Something discussed in an earlier post here.
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5 comments:
I don't fully agree with the analysis at Maktoob. The 'source' who askes the rhetorical (?)question what would happen to Dubai's real estate without Nakheel is obviously a timid soul. The question should be asked for real.
Granted, trade creditors are important because of the ramifications for the local economy and must be paid before the investors. But the worrying bit for me is that Nakheel may be offering such a good deal in order to maintain good business relations with those local businesses for the future. This tells me that they are hellbent on coming back from the dead - which is about the worst that could happen to Dubai's property market in the medium term. What we really need here is a brutal consolidation that sorts the wheat from the chaff. Nakheel is chaff and should go down. Its assets are worth nothing now without an enormous refinancing in order to complete infrastructure. What we don't need is Nakheel reviving ludicrous projects and dragging out oversupply for decades.
TRN
Agreed.
I think there are a couple of things at play here.
First, in terms of public "face", it's hard to admit that Nakheel is being wound down. It was part of the Vision. And the chap who the Vision was ascribed to is still around.
Second, as a practical matter, even allowing for banker and investor ADD, it's unlikely that the copious amounts of financing required for building an extravagant real estate project will be forthcoming for a while.
Third, consolidation -probably not overtly brutal - will occur. Dubai's growth is going to be slower - at more normal rates once it recovers. Once this shakes out (no pun intended) and the economic landscape is clearer, then consolidation will occur. Govt companies can be married. Or perhaps privatized. Or just allowed to wither on the vine. Or shift in business, Nahkeel has a bright future ahead of it in maintenance of its well constructed properties. I see a booming market in sump pumps for the "islands".
And as more time passes, the economics of the existing projects will become clearer. I think a lot of unsound hulls will be revealed when the tide goes out. Projects that don't make economic sense. Construction that will be shown to be rushed, inexpertly constructed, cheaply done.
I know someone in the real estate industry who swears based on his economic analysis that there is no way the Burj Al Arab is economically viable - they simply can't charge enough for a room to make a net profit. Even with the "free" land. And the last time I was there, it looked like they were booking tour groups - which can't be the premium traffic. Perhaps a bit more disconcerting - skimping on maintenance. There was some obvious wear and tear. In public areas and in the rooms.
So I don't think you have to worry. The likely result is a slow letting of the air out of the balloon. There won't be a fire and brimstone end to dreams. They will die a slow death. Since new funding will be scarce, new extravagances won't take place.
No matter how hard some hanker after the glory days (and the glory "commissions"), it's hard to see these coming back.
Late reply due to my near constant travel down the road to Abu Dhabi:
The fear of losing face seems to be stronger than reason (nothing new there..). There is no way Nakheel can resurrect the 'vision'. Even if the guy who "wrote [a poem] on water" around Palm Jebel Ali continues to wish it...It's over, and out.
The consolidation may not look brutal to you, from a distance. Here on the dusty ground, it looks scary: Thousands in the real estate and construction have lost their jobs and continue to lose. Contractors have stamina. They'll not shut up shop at the first hiccup but should be able to sustain one or two years without work. Many have done that, but the two years are over now and Abu Dhabi for one hasn't pulled the finger out. Watching AD make decisions is like watching paint dry. Only less fun.
And one has to remember that this industry accounted for way more than 30% of Dubai's economy. My boss, who's been around the Dubai construction /development business for thirty odd years, reckons that we are staring into an abyss of seven to ten lean years (supermodel style lean; anorexic style lean).
You can make this up on your fingers: Add the tidal wave of oversupply which is about to break on our real estate shores and swamp if for years, and the pre-contract (pre-construction) timeline of any new substantial projects of two/three years and then a construction period of three years. I.e to do big things you need 5/6 years and you'd be a fool do start even thinking about anything before 2012/2013 /2014...
Nakheel, khallas!
On the bright side (but perhaps cold comfort to you and your fellows in the industry) slow decision making can avoid getting caught up in irrationally exuberant waves.
By the time one makes up one's mind, one sees the other boats that have run aground.
AA,
I agree in principle, but of all people /bodies it is the Abu Dhabi government who could afford to forge ahead in total nonchalant disregard to the short and medium term. And so they should: unlike Dubai they desperately need to grow and house their Emirati population; unlike Dubai, they have the dough and could just get on with whatever they have planned (Plan Abu Dhabi 2030) without much further ado.
But no, they are just twiddling thumbs and God knows what else.
It wouldn't be the first time that lackadaisical stupor is confused with wisdom...
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