Dubai and L'Affaire Abraaj - Realism Amid Emotion and Financial Fairy Tales

Perhaps Better to Wait Till the Dust Settles to Get a Clearer Picture?

As you might expect, in the wake of the Abraaj scandal, financial journalists are examining the impact on GCC markets and in particular Dubai. 

Nicholas Parasie at the WSJ took a look at Dubai earlier this week.  “Once Billed as a Financial Haven in the Middle East, Dubai Turns Investors Wary”   

As usual, I have a slightly contrarian view which I’d like to convey by responding to quotes from his article. The point of this exercise is not to cast doubt on the article, but use several of the points mentioned to highlight areas of difference. 

“Investors are questioning whether Dubai’s young financial center can police itself as the meltdown of its marquee private-equity firm highlights broader concerns about placing money in the region.”

That’s a perfectly natural human reaction.  I’ve got a problem so first let’s identify all the people who let me down and are responsible for my misfortune.  Perhaps, but perhaps not, I’ll eventually get around to examining my own behaviour. 

There’s another element.  Realistically, where is that well-policed market that Dubai should measure up to? That sought after “haven”? 

The Bernie Madoff scandal, the dot.com bust, the almost a Second Great Depression, Lehman, Libor all occurred in what are generally described as the “mature” “well regulated” markets in the OECD.  These scandals are widely attributed to regulatory and corporate governance failures which is the central “charge” against Dubai in L' Affaire Abraaj. 

Given the dollar magnitude and number of these scandals relative to those in Dubai, shouldn’t investors be questioning the ability of these “Western” markets to police themselves much more than questioning Dubai? If not, why not?  

Should Dubai be held to a higher standard?  If so, why?  

“Dubai was supposed to be a rules-based haven in the Middle East’s opaque financial world, but fears about corporate governance and conflicts of interest are rising."

I suppose if one didn’t look too closely but rather relied on the promotional advertising alone one might have imagined that Dubai was a “rules-based haven”.  But one would have had to be pretty oblivious.  It's like reading "The Art of the Deal" and thinking that the chap on the cover is America's #1 DealMeister.  In both cases your credulity would have gotten the better of the facts. 

I know that for some—usually bankers and investors--ten or fifteen years in the past is an age unknown probably before recorded time.  

But back in 2004 Ian Hay Davison, Chairman, and Philip Thorpe, CEO, both of the DFSA were summarily sacked. Ian by mobile phone.  Philip was "escorted" from the DFSA’s offices.  Both “lost” their jobs because they had the temerity to suggest that the real estate transaction for the Gate was freighted with conflicts of interest among certain high “personalities”.   Read it here.  If you read it in the Torygraph, you know it must be true. 

After the Dubacle--which in itself might have suggested causes more than just irrational real estate exuberance--, a number of high ranking officials were relieved of their positions.  One chap, the former head of the DIFC, was “encouraged” to return “bonuses” that were alleged to have been improperly obtained. There is of course more but those are two rather glaring examples.  A good rule of thumb is that if you suspect there are ethical issues at a regulator or in government departments or corporations, you should be wary of ascribing high standards to the jurisdiction.  Focus like this can simplify your due diligence greatly.  

“Unlike in the West, where corporate executives are often held accountable by supervisory boards, “there are no checks and balances in the Middle East in some companies,” she said.”  The “she” in this quote is Alissa Amico, a Paris-based former executive at the Organization for Economic Cooperation and Development.

Quite!  As to the “developed” Western markets, there are “checks and balances” indeed but mostly on paper. Rarely do independent board members take action to prevent corporate malfeasance.   In some cases, they appear to aid and abet it. See Hollinger. See Enron whose board composition on its face ticked every box in good corporate governance.  See Volkswagen and dieselgate.  For more on supervisory board failures in Germany read this article from Handelsblatt. 

The clear lesson here is that corporate structures and rules while a necessary condition are not sufficient to prevent malfeasance. People are the critical variable that make these structures and rules effective. If they are wanting, the entire structure fails.     

“The longer it waits, the more Dubai’s ability to attract foreign capital could be at risk, said Oliver Schutzmann, chief executive of Iridium Advisors, an investor-relations firm.” The “it” in this quote is the DFSA.

No doubt immediate action might satisfy investors who no doubt are looking for vengeance. 

But a proper investigation needs to be conducted to determine the extent of the malfeasance, if any, and the parties involved.  

MF Global collapsed in late 2011.  In 2013 the US CFTC filed charges against the former Chairman and CEO that involved allegations of “misuse” of client funds similar to allegations against officers of Abraaj.  

There are risks to too-quick action.  

1. Failure to punish all those, if any, who should be punished.  
2. Failure to punish for all offenses.  The DFSA would look rather incompetent if it later turned out that there were transgressions more serious than “borrowing” client funds at Abraaj and that it failed to punish these. 
3. Or if in the rush to take action, it inadequately prepared its case and wrongdoers, if any, were subsequently acquitted.  

As well, while vengeance may be  satisfying, it won’t result in investors being made whole.  Rather cold comfort for Mr. Jaffar: I’ll get a jail sentence against Brother Arif, but I still won’t get my US$300 million.  

It’s perfectly natural for investors who have suffered a loss or think they have to get quite emotional and thus irrational.  

Sadly, there’s often a tendency for others to get caught up in these emotions of the moment. Cooler heads are needed, but few are found. 

1. False comparisons are made.  Dubai compared with the mythical conflict-of-interest free well-policed Western markets.  
2. Double standards are applied. Dubai must be purer than Caesar’s wife.  
3. Dire end of the world or end of the market predictions are made. No one will invest here anymore.  But why didn’t that happen after Hay/Thorpe, Bin Sulaiman, et al.? Or after the Dubacle?  Or in Bahrain after TIBC, Awal, GFH?  Or in Kuwait after TID and Global?  Or in KSA, after the typical SAMA response to prefer local banks over foreign in the TIBC and Awal affair? Or in the USA after the Almost a Second Great Depression? 
4. Fundamental issues can be missed.  Nuances lost.  What really makes a market investable?  A fancy building, some imported be-wigged English-law judges, an impressive rule book? Or are other things more important?  
5. Remedies are prescribed before there's enough information for a thorough diagnosis.  We really don’t know exactly the extent and type of malfeasance in L'Affaire Abraaj.  Is it equivalent to MF Global or Bernie Madoff?  Who was involved?  Yet, hobby horses are trotted out from the stable and vigorously ridden.  Sometimes very specific prescriptions given.
6. Sometimes meaningless platitudes are given.  Meaningless because they are not specific.  “Regulators and boards need to step up their game.”  Or perhaps “work smarter not harder”.  Indeed, if only the UK had “stepped up its game” in the World Cup, they would have won.  If Abraaj had “stepped up its game”, no doubt it would have realized the sale of K-El and there wouldn’t have been a cashflow problem.  
7. Can we be that far away from a suggestion to use Blockchain to “disrupt” old patterns of corporate governance? In some places it promises the disruption of courts. Why not corporate governance?  Let's step boldly forward together to the “bleeding edge of leveraging the Blockchain space to disrupt the existing paradigm of corporate governance”.

السماء لا تمطر ذهباً ولا فضة One Gram

Personal preference: AA would remove the "l" above.  3:160

No, AA hasn’t branched out into pharmaceuticals. 

An article in Gulf News caught my eye “Buy Property in Dubai with Crypto-currency.” 

“OneGram will go live in June next. Investors in MAG properties will purchase OneGram to the value of the property and receive a 5 per cent discount on the property price as a result. The OneGram will then remit to MAG according to the payment plan, which is 35 per cent over six to nine months and 65 per cent on completion at the end of 2019”

At first blush this sounds like a great deal.

Assume you want to buy that corner unit in برج أوهام for AED 3 million.  Right off the bat you’ve saved AED 150,000.

But a closer look indicates that the deal may not be as sweet as the result of patience. 

Let’s look at the Shari’ah whitepaper prepared by OG’s advisor, AlMaali Training and Consultancy, specifically at the fee discussion on pages 16-17.

First, there is a 10% purchase fee equal to the amount of OG one wants to buy.  That’s 10% of AED 2,850,000 (95% of AED 3 million).  Or AED 285,000.   Oops, we now appear to be AED 135,000 in the red.  (AED 150,000 less AED 285,000)

But as they say “wait there’s more”.  There’s also a 1% transaction fee for another AED 28,500 for a grand total of AED 163,500. 

Thus, we’ll pay AED 3,163,500 for our AED 3,000,000 apartment. 

And as per the above quote, we’re required to pay 100% of the price to OG up front who will then carefully safeguard 65% of our funds until 2019 (roughly two years) when MAG is owed the money.  No interest paid I suppose since this is an “Islamic” financial instrument.  No need for any present value calculations even if based on "profit rates" as opposed to interest rates.

Despite all this, we can take comfort from using an innovative new Islamic financing tool and helping a deserving firm make a nice profit.  Can’t we? 

If you’re wondering, the 10% entry fee is used for the following purposes:

1. 5% (or 50% of the total fee) for long term business development. 
2. 1.5% (or 15% of the total fee) for marketing costs. 
3. 1.5% (or 15% of the total fee) for operations –gold transport, fee for offering spot price, storage, insurance. 
4. 2% (or 20% of the total fee) for salaries.

The 1% transaction fee is allocated as follows: 

1. 70% to buy additional gold to back each OG token.  What this means is that over time more than one gram of gold will back each token.  Of course, if you sell your OG, you don’t share in this benefit. The chap who buys from you does unless some how you can work that future benefit into the selling price you receive. On that basis, the business logic of this mechanism escapes AA.   If one uses OG as a medium of exchange, the benefit of this feature would appear to be small.  If one were getting OG tokens for free as a “miner” or perhaps in some other way (founder), this could be quite attractive. Having said that another Dubai-linked gold cryptocurrency Currensee has a similar mechanism, though 80% of the their 1% transaction fee will purchase additional gold.  Interestingly their maximum transaction fee appears capped at USD 10.  Currensee whitepaper page 9. 
2. 10% for operations and development.  The whitepaper has an error here and in the next two categories.  It states 2.5%, though from the numbers provided example it’s clearly 10%. 
3. 10% for charitable contributions. 
4. 10% for the “miner” reward with the caveat that under Shari’ah there can be no guaranteed returns.  It’s unclear what this is all about on two fronts.  First, the whitepaper describes the “miner” as the “investor”.    Second, if this is truly a transaction fee, it would seem that it would be perfectly halal.

There’s a different version on the allocation of the 1% transaction fee in the English “whitepaper” written by I.M. Khan in categories 2 to 4 above.  On page 6 the operations and development fee is 25% (Currensee takes 20%) and the charitable deduction and mining fee (here clarified as a fee for blockchain processing) are each 2.5%.  In IMK’s estimation the transaction fee is “minimal” compared to “traditional banking” (page 2). 

Analyst disclosure:  In all AA’s personal traditional banking relationships I pay no more than a flat USD 45 fee for a payment.  This is with both OECD and non OECD banks. The firm I work for has an even smaller cost. 

All OG’s fees—set on transaction amounts--look like a sweet deal for someone but perhaps not necessarily investors in OG.

By comparison Bitcoin’s transaction fees are a flat per transaction fee not a percentage of the amount.  Recently, there was a bit of a hue and cry over a temporary spike in Bitcoin’s transaction fee to USD 26.  At OG, you could move USD 2,600 equivalent for that fee!  If you wanted to move more, the OG fee would be higher.  

Bitcoin transaction fees vary by demands on the capacity of the (Bitcoin) Blockchain, resulting from what appears to be a rather small maximum size per “block”.  If one is not in a hurry to complete a transaction, one can simply offer a lower fee and wait until the higher fee offering transactions have cleared. As might be expected “miners” prioritize transactions based on the block processing fee they will earn.  

As to entry prices, Bitcoin has a typical trading bid/ask spread which fluctuates with market conditions and is not a fixed percentage cost. 

Second analyst disclosure, AA is not recommending Bitcoin as a superior investment but merely pointing out the difference in fee structure.

It should be noted that OG has ongoing operating costs regarding the storage, insurance, etc. of the physical gold that Bitcoin which is backed by air does not.  Whether its other costs are justified or not, الله أعلم 

OG’s fees may appear higher than market, but surely one can’t put a price on adherence to one’s faith.

Interestingly, OG also offers a Russian language copy of the whitepaper, but no Arabic version.  Apparently OG sees an opportunity to market to the legions of Muslim investors in the RF.   

Dubai Sovereign Bond: "Pay to Play"

An article in the FT today reports that bankers were told that lead underwriters on Dubai's recent US$1.25 billion sovereign bond were told that in order to be considered they needed to make loans to the Emirate.  Supposedly a two-year loan for some US$300 million priced at Libor +300 bps.

A couple of observations.

First, this is a pretty standard request, particularly from a client having a bit of a problem.  Just as the good banker is taught to seek to increase his "share of a customer's wallet" in good times, borrowers especially those currently out of favor in the market look for their bankers to be understanding in more difficult times.  In both cases there's a lot of talk about the importance of relationships.  How strong they are.  Sentiments said with no doubt more sincerity than the average politician's promise.  But just as meaningful for that.

Second, Dubai's Sovereign Bond was "priced to place".   Dubai could not afford to have this transaction fail. With a bond, a low price means the interest rate was set higher than it needed to be.   Pretty much the same rationale as IPO pricing.  Under price the security by a bit so that the offer is successful.  And then  as the share rises in initial trading, you've got a good story for the company and the investors.    

I've seen estimates that Dubai's pricing may have been as much as 0.75% to 1.0% higher than required.  The underwriters who "sat" on a substantial portion of their allocations may not too far in the future have large capital gains - though probably not until after issuance of the DEWA bond.  If they've placed it with clients,  as some will have, then they will derive some relationship benefits there and can use those to secure additional business from those clients.    Just as the investment firm that can allocate IPOs to its customers gets something back.

For HSBC and Standard Chartered with major domestic operations in the UAE, being seen as a good friend is a useful thing.  If indeed SC's threat to move its corporate headquarters to the more tax and regulation friendly shores of Dubai is more than mere posturing, another good reason.

Finally, there's probably also a very hard headed calculation here - that it's going to be some time before Dubai regains full market access.  Amounts are likely to remain limited  and increasing only slowly.  Pricing will probably improve even slower.  As the thinking goes, there are opportunities for profit here.

And of course, there is one other factor in play:  banker and investor ADD.

Do bankers have short memories?

Excuse me, could you repeat that, I've forgotten what you asked. 

Dubai Escrow Law: Exemptions Fueled Boom and Left Buyers High and Dry

 Credibility - Now You See It, Now You Don't

A very good piece of investigative reporting by Asa Fitch at The National.

In 2007 with great fanfare Dubai passed a law requiring that developers set up escrow accounts to ring fence buyers' funds so they would only be used for construction and related costs on the projects that the buyers invested in. 

Rather quietly and quickly the Dubai Land Department gutted the law by granting exemptions to certain master developers. Among this select group were Nakheel and Emaar as well as other Dubai World entities.  The latter two have recently (three years later!) disclosed this fact.  Apparently, neither they nor the DLD considered it material information an investor/buyer might be interested in knowing or have a right to know.

A couple of quotes:

The developers of multiple projects in Dubai that are stalled spent money in this way, and now homeowners find that their investments were spent but that the projects cannot continue without new funding.

But having to comply with escrow laws could be burdensome for developers such as Nakheel and Emaar because of their obligation to build expensive infrastructure in their master developments. Emaar said in its prospectus last week that if it had to comply with escrow laws, its "business model may be significantly impaired as it would only be able to finance the construction of projects with corresponding purchase price instalments once certain construction milestones are met".

Poof, there goes the last illusion of Dubai as a world class financial center.

And, no, it's not a matter of professionalism  as one "expert" has it.  It's much more basic.  It's a matter of running a fair, honest market.  When the games are rigged, one is well advised to go to another casino.  When one doesn't get a fair shake (or a fair Shaykh), it's time to look to another market.

To be very clear, the central issue here is not that an exemption was given.  It was that the granting of the exemption was not disclosed.  Neither by the Government or the companies.  There may have been what were considered at the time very good reasons to give an exemption.  The problem was that buyers had no way of knowing.  They should have.  

SICO Bahrain: Dubai Debt Problems Just Deferred Until 2014?

SICO Bahrain has issued a new report, "Dubai Debt Concerns Deferred to 2014".  SICO Research is only available to registered users so you'll have to sign up to read the report in detail.

Here are some highlights.  Themes that might already be familiar and some not.

1. Forgetfulness of investors in limelight.  Some history on the trends in CDS spread differentials between Dubai and Abu Dhabi (180 bps in October 2009 to 480 bps in early December and then again to similar levels around the Greek crisis).
2. Recent US$1.25 billion issue not sufficient to plug the 2010 deficit (estimated at US$1.6 billion).  Plans to slash subsidies and other transfers by 64%, though wages to increase by nearly 20% as the Government needs to make room for more nationals entering the workforce.
3. Repayment schedule remains a challenge.  SICO estimates very modest debt repayments in 2011 and 2012.  For the period 2013 - 2015 excluding bilateral, the estimates are US$1.7 billion in 2013,   US$19.23 billion in 2014 and US$0.5 billion in 2015.   So a definite debt hump in 2014 - and the reason for the title to SICO's article.
4. Economic recovery may not improve Government revenues.  Trade and tourism not expected to generate significant large government revenues.
5. Not many options to improve finances.  Taxes a possibility but pose competitive disadvantage vis-a-vis other GCC states.
6. Sale of assets a possibility.  SICO believes the Government may take the strategy of selling partial stakes to raise cash rather than relinquish control of strategic assets.
7. Dubai increasingly "leveraging" the UAE brand.  Apparently in the prospectus for the recent bond, a great deal was made of the fact that the UAE has a AA sovereign rating.  SICO sees this as a way of diverting attention from Dubai's 395 bps CDS roughly 296 bps higher than Abu Dhabi.  In my opinion it may also be a way of reminding investors of Abu Dhabi's deep pockets.
8. Despite the negatives, SICO does not believe a sovereign default is likely.  It seems to me that the major issue here is one of pricing of credit as well as lenders and investors being careful about the quantum they commit to the Emirate.

Dubai's Real Estate Woes Continue

A Not So "Unique" 50 Story Dream from 1997 

 

One of our regular readers/commentators, Laocowboy2, called this New York Times  article on the continuing woes in Dubai's real estate market to my attention.

Some quotes with captions.

"We're not in Kansas anymore, Toto"  The biggest mistake - mistaking a foreign country for your own - and assuming that legal systems, services, construction quality are just like "back home".

“It’s not like in Western countries. It’s very difficult to exit here if there’s a problem. And we’ll never get our money back, but now we’re stuck dealing with this hole.”

AA's Second Law of Lending and Investing: "Due Diligence Before the Deal Not After"

"At the time, few asked if there was a legal framework for resolving potential disputes. Now, with the glitter gone, interviews with investors, legal specialists and real estate analysts here show that many who bought in are finding it hard to get out."

“The rules of the game are definitely opaque here,” said an investor who has bought several properties in Dubai and who insisted on anonymity because of delicate talks with developers and regulators. “In the United States, I would know my legal position much more clearly and could take actions if necessary.“ 

Besides "location, location, location" supply and demand also impacts prices.

Although about 70 percent of empty lots from three years ago have been filled, real estate construction since then has far exceeded the purchases, more than doubling the amount of vacant space available, said Timothy Trask, the director of corporate ratings at Standard & Poor’s in Dubai.

No mention of quality of materials and construction.  Perhaps, that will become  more widely apparent in a few years time, though there's always the odd Discovery Gardens or Sky Gardens or The Villa to help discover flaws.

Dubai’s Back: CD Spreads Down But …

 Jakub Hałun
GNU Free Documentation License Version 1.2 

富士山- 5 合目

There have been numerous stories in the press how Dubai is making progress coming back. The conclusion of the Dubai World restructuring agreement and the issuance of the sovereign bond are touted as a watershed in this process.

That's not to say that there is no progress, but that it's a bit premature to declare success.

I'm planning a post on the bond later. Today I'd like to turn to the CDS spreads.

What we are told is that there has been a remarkable compression in CDS spreads which touched 650 or 660 bps, if I remember correctly, at the height of the crisis. The spreads are now down to pre-crisis levels, though pre-crisis is measured as the spread just before the announcement.

There's an apparent fallacy in that statement.  Prior to Dubai's November announcement, its spreads were not in some "golden age" except when compared to the market reaction post announcement. And a lot of that was over reaction due to the market being one-sided (a preponderance of demand for protection over the supply of protection) coupled with the fact that the CDS market is rather thin on the best of days. And even thinner the further one's obligor from the major markets.

There is a tendency among some to imagine that credit is like a light switch. It's either good (on) or bad (off). That's not the case.  There are gradations and usually (but not always) credit improvement or deterioration takes place over time.

Prior to the DW announcement, Dubai's CDS spreads had been trending larger, reflecting deterioration in its credit.

As an illustration, let's take a look at some very easily accessible data on five-year CDS spreads from Markaz. You won't need a Bloomberg for this.

Country	Spread
Germany	38.1
USA	47.1
Japan	59.1
China	62.9
UK	63.8
France	79.0
Saudi Arabia	80.2
Qatar	95.3
Abu Dhabi	106.4
Turkey	150.9
Bahrain	175.7
Oman	221.0
Egypt	227.7
Lebanon	288.7
Dubai	391.3

As indicated above, there are a lot of factors besides credit that affect the spreads. But I think this gives a relatively good idea of where the market sees Dubai's credit. And one would expect Dubai to be higher in the ranking.

So progress has been made. But … there's a longer way to go as indicated in the picture above.  And if you got to the Fifth Station on the bus as many do, your most strenuous efforts are yet to come.  Such is the case with Dubai.

HH Shaykh Mohammed Bin Rashid Al Maktoum Interview: "Dubai is Back"

Here's the Bloomberg interview with Shaykh Mohammad and Shaykh Hamdan.

And as well, here are some unbiased reactions to the interview by various local personalities.

DIC Restructuring: Difficult Discussions Over Margin and Covenants?

Asa Fitch over at The National reports that discussions between DIC and its creditors over the proposed five-year rescheduling are focused on:

1. The margin. DIC would like 85 bp.  The lenders appear to be sensibly asking for more.  Though the precedent set by Dubai World's rescheduling is not in the lenders' favor.
2. The lenders would like covenants triggering default if certain levels of asset sales aren't met in the second and fourth years of the restructured facility.

While Asa's sources describe the proceedings as "fierce", the Company itself sees things proceeding smoothly.  

I suspect this will end up with a cosmetic change in the margin.  Hopefully, the banks have their eyes firmly on the prize (the more important point):  covenants to force asset sales.  An extra 100 or 200 bps is going to be cold comfort, if the banks can't force the return of their principal.  

There's nothing like the reluctance of an investor who bought at the top of the market to sell when markets are depressed.  He knows there's real additional value there and he has the loans to prove it.  Plus do I need to add The Vision.

The National: Mahmood Karzai Villa Sale and US Federal Tax

The National is in the process of changing its website.  

The draft site site has some articles not in the existing site.  Here's one about potential US tax issues for Mr. Mahmood Karzai with the sale of his Dubai villa.  You'll find other articles and get a sneak peek at the new format by going to www.beta.thenational.ae

You can read the article for details.  

The US is one of a few countries that tax their citizens on worldwide income. 

Reuters: How Dubai Got Serious?

An interesting report from Reuters:  How Dubai Got Serious.

A deliberate choice of headline?  Or perhaps an unintended indication that at one point Dubai was not serious?

To whet your appetite some quotes.  My comments follow each quote.

The auditors' task is to investigate exactly where the money went, who lined whose pockets, and what other financial landmines might lie in store. Forensic audits at state-linked firms, such as Dubai Holding, are part of a wider corruption probe that has targeted senior figures from Dubai's boom years.

Lots of commissions to track down to say nothing of more simple misappropriations.

Abu Dhabi's ascendancy began in the wake of 2008's global credit crunch. Reports about debt trouble in Dubai's flagship companies had been circulating within government from as early as 2005, though most people seemed happy to ignore them. In 2008, the end of a six-year oil-fueled boom burst Dubai's real estate bubble while the global financial crisis left the emirate unable to refinance looming debt obligations.

Lenders merrily rolling over loans and pretending everything was OK.

 "The announcement was a disaster for Dubai. They were told 'don't worry, Argentina has done this, Venezuela has done it. People forget and they start lending again.' But what they didn't take into account was that those are real economies. This is not a country.

Ouch!  But right on target.  Not a country in several ways. 

"Nakheel's books were so screwed up it wasn't even funny."

"No-one knew the magnitude of what was owed, then the complexity of it," the former adviser to Dubai World says. "A lack of experience -- and ego -- made it hard to admit defeat."

And still make it so for the "Dubai's back" crowd.

Almost two-thirds of Dubai World's debt is held by six banks, four of them British: HSBC, Lloyds, Royal Bank of Scotland, Standard Chartered, and local lenders Emirates NBD and Abu Dhabi Commercial Bank.

Another great moment in banking!  There's no fool like and old fool.  And then there are bankers.

"They believe that now the problem is solved," says the former Dubai World adviser, who is critical of creeping complacency just a year after the crisis. "The problem is not solved, they still owe the same amount of money. They will have to pay the same amount, only a little later."

See above "We're back".

Damas - Standstill Extension Signed

Damas announced another remarkable bit of progress and as well yet another "vote of confidence" from its lenders in its proven business model.

Here's the PR from Nasdaq Dubai this morning.

Following the announcement by Damas International Limited (the "Company") on 19 September 2010 that the steering committee of the Company's lenders had, in principle, approved an extension of the standstill agreement to 30 November 2010, the Company announces today that the Company has signed an amendment agreement dated 30 September 2010 to the standstill agreement dated 24 March 2010 (as amended pursuant to two amendment agreements dated 27 April 2010 and 13 July 2010 respectively) between the Company and the steering committee so as to formally extend the standstill to 30 November 2010.

A Company spokesman commented that "the agreement of the steering committee to the standstill extension shows once again the confidence that the bank lenders have in the restructuring process and the strength of the underlying business model of the Company".

If you believe the press release, and I hope you don't, Damas has scored yet another vote of confidence from its lenders.

 

Actually, it has not.

 

If there was a vote of confidence from its lenders, it is when they agreed the extension not when they signed the agreement.  Not when they signed to document that agreement.  Sorry, Damas, you only get one vote from this.

 

But more importantly this is actually a vote of no confidence in the local legal system. 

 

Rather than say no and refuse an extension.  Lenders realized that recourse to local courts would greatly diminish their already worrisome recovery prospects.  So they went along with another extension on the 19th and signed it today.

"We're Back" - Part II: "Back to the Future"

Two Unnamed Lenders Unsuccessfully Attempt to Retrieve Their Loan

We're back indeed!

Seems Limitless needs another six months. 

Guess lenders should have figured out that when the borrower's name is Limitless, there could be all sorts of related problems with amounts and repayment.

I can't wait for the sequel.  This plot has got at least a couple more runs.

Time for a Visit to the Optometrist?

Dubai is back in business and the emirate's vision is unchanged, His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, told Bloomberg Television on Sunday.

Corrective lenses may help this condition.

Begin with the top line, Your Highness.

(Being a Shaykh means you never have to admit a mistake.  If you can read this from 5 meters, your Vision truly is 20:20).

Nakheel: CDG Lawsuit Will Not Delay Deal with Trade Creditors

Nakheel has issued a press release (to Reuters) stating that CDG's lawsuit will not delay its reaching a settlement with trade creditors.  It also said that it expected to prevail against CDG noting that it disputed the entire claim and had counterclaims of its own against CDG.

Nakheel said it has approximately 85 percent of acceptances, by value, for its restructuring deal and is "well on target to achieve its 95 percent acceptance of all payables and claims within the near future," according to the statement sent to Reuters late Tuesday

Mashreqbank v AlGosaibi - Al Sanea's Forum Non Conveniens Motion Successful

Above Main Entrance to NY Supreme Court

Looks like Mr. Al Sanea is continuing his run of victories in the NY Courts.  

As you'll recall when Mashreqbank filed suit against AHAB in the NY Supreme Court, AHAB had Mr. Al Sanea added as a third party defendant.

July 29 Judge Lowe of the NY Supreme Court ruled in favor of Mr. Al Sanea's request that due to forum non conveniens he and Awal Bank be removed as third party defendants. 

While Mashreqbank is appealing, based on the pattern of judgments in the NY Supreme Court, their chances of obtaining a reversal of the ruling would appear to be somewhere between slim and none.   Wonder if AHAB will now find NY an inconvenient forum and file a motion.  There seems to be lots of precedents for this.

(As before, the email notification from the NY Supreme Court is a bit late in arriving.)

You can find earlier posts on this topic by using the label "Mashreqbank".

The NY Supreme Court Case Reference # is 601650/2009.

Construction Delivery Group Files AED49 Million Suit Against Nakheel

Bradley Hope over at The National reports that CDG has filed an AED million suit against Nakheel at the special Dubai World Tribunal at the DIFC.

Here's an extract from the claim filed by CDG (Dubai World Special Tribunal Case DWT-0008-2010).

The DWT website is at www.dubaiworldtribunal.ae.

1.The Claimant claims against the First Defendant and/or the Second Defendant and/or the Third Defendant  damages, monies due, interest, legal fees, costs and expenses.

2.The Claimant's contractual and non-contractual claims arise out of and in connection with a contract (PJ-338) and/or contracts for the provision of Facilities Management Services (comprising Mobilisation Phase Services and Operational Phase Services in respect of 1,224 villas and 114 “Canal Cove homes” located on the Palm Jumeirah, Dubai) between approximately March 2007 and January 2009.

3.The Claimant Claims:

(i)  AED 24,514,464.49  Mobilisation Phase: unpaid fees to 31 January 2009
(ii) AED 2,608,347.75  Mobilisation Phase: loss of profit 01 February 2009 – 30 June 2010 
(iii) AED 6,001,899.58  Operational Phase: unpaid fees to 31 December 2008
(iv) AED 1,369,200.00 Operational Phase: loss of profit 01 January 2009 – 31May 2009
(v) AED 4,097,925.00 Operational Phase: Maintenance Services; fixed running costs for villas exceeding 400;  01 June 2008 - 31 December 2008
(vi) AED 982,534.00 Loss and damage: office, plant and equipment
(vii) AED 103,235.69 Loss and damage: emergency stores
(viii) AED 1,095,149.87 Loss of main office overhead contribution
(ix) AED 679,023.69 De-mobilisation costs on wrongful termination
(x) AED - To be advised  Loss of the use of the Claimant's Performance Security (AED 1,569,460.00) for the period 10 February 2009 – 07 October 2009

Interest pursuant to Articles 88 and 76 of Federal Law No. 18 of 1993: the Claimant claims compound interest on the above amounts at 12% per annum from the date such sums accrued to the date of payment, alternatively at such rate and for such period as the Tribunal deems fit.

As Bradley notes the process and outcome of the case will be closely watched to see how the Special Tribunal works.  As well, whether the ST gives smaller creditors a way around the rescheduling.  It would seem that CDG perhaps does not intend to contract with Nakheel again.

Emaar - Investment Opportunity of a Lifetime

I see on the DFM this morning that Emaar's Board has decided to sell its 200,000 treasury shares.  

You'd better jump quickly before this opportunity passes you by.

Unlike the postman, Opportunity only knocks once.

Update:  Shares sold 20 September at AED3.84 per share.

Damas - Board Undertakes Further "Progress" in "Enforcing" Enforceable Undertaking

Actual Cascade Agreement.

Look closely for the water.  

DIL shares in green.

 

Damas' Board announced on NasdaqDubai further developments related to the Abdullah Brothers and the DFSA mandated Enforceable Undertaking.

Damas is getting ready to sign a Cascade Agreement with the Flying Abdullah Brothers and their two companies Damas Real Estate LLC and Damas Investments Limited. as well as these entities' other lenders. 

Under the proposed CA Damas will agree:

(a)   not to enforce its rights under the settlement agreement dated 10 October 2009 between, amongst others, the Abdullah Brothers and DIL; and
(b)  not to enforce its rights under the share pledge (the "DIL Share Pledge") granted by the Abdullah Brothers on 31 October 2009 in favour of DIL in respect of 350 million shares in DIL (the "DIL Pledged Shares").

I presume that DIL is just agreeing to forbearance on its rights above.  That is, it has not renounced these rights nor is it sharing the DIL Pledged Shares with the other lenders.  This sort of inter lender agreement is fairly common.  The operative presumption being that if one creditor moves to exercise its rights it could bring the debtor down thus hurting all the parties. So it's an agreement among the lenders to move in tandem.

It's probably a safe bet that the FAB were consistently "wise" investors.  Thus, they probably used the loans from other lenders to finance similar "great" investments in real estate, etc. as they ones they made with the money they stole, excuse me, "withdrew without proper documentation" from DIL.  Which suggests that the cash flow may well be as depicted above.  In such a case one wouldn't want to be at the tail end of the cascade.

Not much that could be done.  They say (and they are so often right that I don't even bother to contradict them anymore) that Mar Jude is the Patron Saint of Bank Loan Workout Groups.  Where's Amos Yaqub when DIL needs him? He's got a special "in" with Mar Jude.