intro of dubai

8/6/2019 Intro of Dubai

1/66

DUBAI GLOBAL FINANCIAL CRISIS

DUBAI INTRODUCTION

1- Located at the cross-roads of Asia,Europe and Africa

2- Dubai is well positioned to attracttourists

3- Sunshine, shopping, seaside, sportsand safety -five of the key ingredientsthat have earned Dubai a growingreputation as one of the world's mostattractive and rapidly developingleisure destinations.

4-Trading and commercial hub of theMiddle East

1
http://www.forum4finance.com/wp-content/uploads/2009/11/Crisis-B.JPG


2/66


Dubai was another fallout of the global

real estate bubble

With global financial markets plunging

after Dubai World, the government

investment company burdened with $59

bn liabilities, requested for deferment of

debt to its creditors for six months, on

25th Nov 2009.

Nakheel had a debt of $26bn $3.5 bnIslamic bond due to be paid on 14th Dec

2009.

The Dubai governments total debt is

estimated at $80 bn.

After 2003- Dubai economic model-

More debt & less equity.

Advantage of

Political and economic openness,

Better infrastructure,

Trade mark of regional and world

business hub.

FDI invited:

Invested in real estate-

Infrastructure,

Tourism- airway

Trade

2


3/66


Mismatch between demand and supply.

Dubai has accrued debts of

approximately US$85-100 billion, or

around 200% of GDP.

Government restrictions were low.

Lax lending standards and low interest

rates.

Dubais main development engine- Dubai

world and its real estate arm- Nakheel

. Issued Nakheel bonds- investors ready

to invest as it was state owned

. Today many bonds are due and cash

flow is not enough to pay them back.

Restructuring effect-

It has a reported US$60 billion inliabilities, offset by a calculated

US$40 billion in assets

There is a maturity mismatch- the

expected revenue is in the future

while liabilities, including to

contractors and suppliers, are

piling up today.

3


4/66


RESOURCES PERCENTAGE OF UAE

4


5/66


SECTORAL COMPOSITION OF GDP OF DUBAI

5


6/66


INTRODUCTION OF DUBAI

Dubai is one of the seven emirates of the United Arab Emirates (UAE). It is

located south of the Persian Gulf on the Arabian Peninsula. The Dubai

Municipality is sometimes called Dubai state to distinguish it from the emirate.

Written accounts document the existence of the city for at least 150 years prior to

the formation of the UAE. Legal, political, military and economic functions with

the other emirates within a federal framework, although each emirate has

jurisdiction over some functions such as civic law enforcement and provision andupkeep of local facilities.

Dubai has been ruled by the Al Maktoum dynasty since 1833. Dubai's current

ruler, Mohammed bin Rashid Al Maktoum, is also the Prime Minister and Vice

President of the UAE.

The emirate's main revenues are from tourism, property and financial services.

Although Dubai's economy was originally built on the oil industry, revenues from

petroleum and natural gas currently contribute less than 6% (2006) of the emirate's

US$ 80 billion economy (2009). Property and construction contributed 22.6% to

the economy in 2005, before the current large-scale construction boom.

Dubai has attracted attention through its real estate projects and sports events. This

increased attention, coinciding with its emergence as a Global City and business

hub, has highlighted labour and human rights issues concerning its largely South

Asian workforce. Established in 2004, the Dubai International

6


7/66


Finance Centre was intended as a landmark project to turn Dubai into a major

international hub for banks and finance to rivals New York, London and Hong

Kong.

Dubai's gross domestic product as of 2005 was US$37 billion. Although

Dubai's economy was built on the back of the oil industry, revenues from oil and

natural gas currently account for less than 6% of the emirate's revenues. It is

estimated that Dubai produces 240,000 barrels of oil a day and substantialquantities of gas from offshore fields. The emirate's share in UAE gas revenues is

about 2%. Dubai's oil reserves have diminished significantly and are expected to be

exhausted in 20 years. Property and construction (22.6%), trade (16%), and

financial services (11%) are the largest contributors to Dubai's economy.

7


8/66


OVERVIEW OF DUBAIS FINANCIAL POSITION

The Dubai Financial Market (DFM) was established in March 2000 as a secondary

market for trading securities and bonds, both local and foreign. As of fourth quarter

2006, its trading volume stood at about 400 billion shares, worth US$ 95 billion in

total. The DFM had a market capitalization of about US$ 87 billion.

The government's decision to diversify from a trade-based, but oil-reliant,

economy to one that is service and tourism-oriented has made property more

valuable, resulting in the property appreciation from 20042006. A longer-term

assessment of Dubai's property market, however, showed depreciation; some

properties lost as much as 64% of their value from 2001 to November 2008. The

large scale real estate development projects have led to the construction of some of

the tallest skyscrapers and largest projects in the world such as the Emirates

Towers, the Burj Dubai, the Palm Islands and the world's second tallest and mostexpensive hotel, the Burj Al Arab. Dubai's top re-exporting destinations include

Iran (US$ 790 million), India (US$ 204 million) and Saudi Arabia (US$ 194

million). The emirate's top import sources are Japan (US$ 1.5 billion), China (US$

1.4 billion) and the United States (US$ 1.4 billion).

Dubai's property market has experienced a major downturn in 2008/2009, as a

result of the slowing economic climate. Mohammed al-Abbar council of the sheik

told the international press in December 2008 that Emaar had credits of US$ 70

billions and the state of Dubai additional USD 10 billions while holding estimated

USD 350 billion in real estate assets. By early 2009, the situation had worsened

with the global economic crisis taking a heavy toll on property values, construction

8


9/66


and employment. As of February 2009 Dubai's foreign debt was estimated at

apprx. USD 100 billion , leaving each of the emirate's 250,000 UAE nationals

responsible for 400,000 USD in foreign debt. However, it should be noted that

little of this is sovereign debt.

Dubai had issued to international investors, bonds worth $1.9trillion, which sent

the message that its economic position is unshakable! But now that foundation has

shaken!

9


10/66


REASON FOR DUBAI CRISIS

As the United Arab Emirates celebrates

its 38-year Anniversary of Independence

from Britain, a dark cloud of uncertainty

casts a shadow of fear over the

festivities. The source of the fog: the

November 25, 2009 event known as "the

Dubai World Debacle."In short: Dubai's largest government

owned conglomerate requested a six-month

"hold" on payments in order to restructure

its estimated $60-$80 billion of

liabilities.

In the words of one news source:

"Dubai, once the poster child of the

economic boom... is now the epitome of

recessionary bust.... The recent events

are a wake-up call"

that Dubai's property growth, its man-

made islands shaped as palm trees and

Arabic poems As the United Arab

Emirates.

The Dubai crisis began, when the emirate said Dubai World would not be able to

make on-time payments for some of its $59 billion in debt. The company invested

10


11/66


in lavish real estate projects, including artificial islands in the shape of a palm tree

and a globe, and spent heavily to acquire stakes in glittering properties like

Barneys in New York and the MGM Mirage in Las Vegas.

After the Dubai government's shock

announcement it wants to freeze debt

repayments by its mighty Dubai World

conglomerate for at least six months.

Trading almost froze in financial market

meanwhile, Dubai's shock announcementsent shock waves around the world as

investors feared a possible default by

Dubai and its state-owned businesses,

which together owe US $80 billion.

Stock and Oil Markets amid Dubai Crisis

Stock markets in Dubai and Abu Dhabi closed sharply lower on Monday, shedding

7.3 % and 8.3 % respectively amid a lack of buyers after Dubai World's shock

proposal to suspend debt payments.

The both countries are worried about debt woes. Dubai's benchmark DFM Index

closed at 1,940.36 points, down 152.80 points from its close on recent.

The financial market of the oil-rich Abu Dhabi also reacted negatively to the debt

woes of neighboring Dubai, dropping 8.31 per cent to 2,668.23 points in midday

deals, on Monday November 30th.

Its to be noted that one key loans affected by Dubai World's planned debt is a

Nakheel issue of US$3.5 billion of Islamic bonds scheduled to mature on

December 14. Nasdaq Dubai website published that Dubai most active stock on the

11
http://topics.nytimes.com/top/news/business/companies/mgm-mirage/index.html?inline=nyt-orghttp://www.forum4finance.com/wp-content/uploads/2009/11/Crisis-B.JPGhttp://topics.nytimes.com/top/news/business/companies/mgm-mirage/index.html?inline=nyt-org


12/66


market listed by port operator DP World, part of Dubai World, on NasdaqDubai

exchange, dropped by 14.88 per cent.

Furthermore, the UAE central bank failed to reassure the investors in his Sundays

statement when it announced that it was providing additional liquidity to the UAE

banks.

The real estate big boom began in 1999 when property market was opened to

investors from outside the Gulf Co-operation Council countries.

Properties prices kept on increasing at breath necking pace. Speculative money

moved in and drove the price beyond normal people reach. Higher prices ensuredmore supply of real estate and Oasis started to become a mirage for the normal

people.The dream run of Dubai crashed when the Global Economy went tumbling

down due to sub prime crisis.

In a journey to become world flashy city state owned companies

accumulated debt of over $80 billion. The debt was 126% of the GDP of

Dubai. Of this staggering amount of debt Dubai World the state owned

company had $60 billion of debt.

Worlds top bank had exposure in the short term paper of the Dubai World.

So any sort of default was sure to send tremor to the fragile financial market.

The fall was because of the delaying the date of repayment of $3.5 billion

sukuk bond that is due on 14th December, 2009. The bond was issued by

Nakheel a branch of Dubai World. The announcement irritated the investor

and they triggered the panic button.

The crisis in Dubai triggered sell off across the world

12


13/66


Dubai, unlike other six emirates of UAE is not a country rich with oil resources.

This city state is purely a business city which wholly depending upon tourism andother businesses. Dubai World, in a haste to attract world entrepreneurs started

spending more and more on building fine roads, star hotels etc. Foreign

institutional investors also invested much here, especially during the last four

years.

What happened was that the Dubai government requested the creditors of Dubai

World (one of three conglomerates that are backed by the emirate), to agree to a

'standstill' on repayments until May 30 2010.

The standstill also applies to the $4.05 billion sukuk, or Islamic bond, issued by

Nakheel, the state-owned builder famous for the spectacular Palm Jumeirah

scheme and other such mind boggling projects that involve large-scale land

reclamation. Nakheel's parent company is Dubai World. The truth is that Dubai is

being crushed under a mountain of debt. The emirate has chalked up debt in excess

of $80 billion by expanding in banking, real estate and transportation. Dubai World

with $60 billion liabilities has sought a sixmonth standstill on its debt repayment to

all its lenders. The emirate borrowed $80 billion in a four-year construction boom

that transformed Dubai into a glittering jewel in the middle of the Gulf region and

also into a tourism and financial hotspot. Dubai's sovereign credit default swap has

surged 1.11 per cent to 4.29 per cent, leading to global rating agency Standard &

Poor's placing the ratings of four Dubai-based banks on negative outlook due totheir exposure to Dubai World. The debt itself might not seem too high, but the

uncertainty surrounding the entire issue has spooked financier. Investor confidence

the world over has been shaken up badly, as many wonder if the world would slip

13


14/66


into another recessionary phase, given that there are some other nations in a similar

situation as Dubai: Greece, Iceland, Hungary being just a few of them.

Many nations that are following Dubai's development pattern are inviting trouble,

said analysts. Economists fear that they might have been too hasty in predicting

that the global financial crisis had ended.

The Dubai shock was as severe as it was sudden. Just a few weeks ago (November

first week), Dubai's ruler Sheikh Mohammed bin Rashid al Maktoum, had assured

all that the emirate's financial condition was all right, saying that it would raise

more funds to meet its financial commitments and would be more cautious. As isnormally the case in autocratic regimes like Dubai, no one knew what the real

situation was till it was too late. Analysts feel that either the ruler was unaware of

the magnitude of the problem or his advisors asked him to keep it under the wraps.

INABILITY TO PAY DEBT:

Dubai government has announced just recently, for the time being , not in aposition to repay its outstanding debt of $7,40,000.At the same time, Government

owned mega finance institution-Dubai World also declared that it may not be able

to repay any loan for 6months.This 'Dubai World' is engaged in different business

enterprises like-transport, ship building, township building, etc. A sister-concern of

Dubai world a building construction company, named NAKHEEL is also telling

that it requires some more time to repay its debt installments.

Speculation has mounted that Dubai was struggling under a mountain of debt and

would have to start selling assets or get bailed out by Abu Dhabi. Property prices

in Dubai have plummeted by as much as 40pc in two months. Officially Dubai

continued to insist everything was fine while refusing to reveal any figures.

14


15/66


Meanwhile Dubais stock market is down 60pc this year, hitting many of the listed

companies.

So, total debt: $80bn against total assets of $1.3trillion

Dubai GDP Dh198bn (35.6bn pounds)

Ratio of debt: GDP is 148% compared with 57% in USA, 40% in Britain,

99% Japan Debt per capita: $40,000 per head if split between Dubais

population of two million.

15


16/66


Friday November 27, 2009 Dubai sends markets into turmoil

Some analysts see the Dubai fiasco from a historical angle; to them, the

causes of Dubai turmoil were noticed the moment Sheikh Mohammad Al-

Maktoum, its ruler, took the decision to invest his, as also the Emirate's,

wealth in US real estate markets through the foreign arm of Emaar; the

second largest property developer in Dubai.

The company ultimately went bankrupt, extending the US subprime crisis to

the Emirate. The Washington DC and Abu Dhabi connection has pressured

Dubai to join the "international community" in taking a tougher stance

against Iran, which is one of the main trade partners of the Emirate.

The Dubai fiasco reveals that the impact of the global financial crisis is not

completely over, which started in September 2008 with the bankruptcy of

Lehman Brothers, affecting flow of funds to developing markets like Dubai.

Valuation of assets like real estate got hit. At the same time, rise in the

interest rates because of the liquidity crunch affected viability of many

projects.

16


17/66


ANALYSIS

Dubai World, the flagship holding company of Dubai, with $100 billion in assets

and $59 billion in debt, sought a six-month standstill agreement from its creditors

on November 25, 2009. Bonds amounting to $4 billion and belonging to Nakheel

the property unit of Dubai World - were maturing on December 14, 2009. The

standstill agreement means that Dubai World will negotiate with creditors to

extend maturities.

It was indeed a shocking development. Stock markets around the world convulsedas investors scrambled to understand the implications of the restructuring of debt.

Only two hours before Dubai revealed that it was seeking a standstill arrangement

for Dubai World, it had completed a transaction of $5 billion fully subscribed by

Abu Dhabi through its two state-controlled banks. Dubai has shattered the

confidence and lost its credibility in the eyes of global bond investors. The

question now will be about the nature of the sovereign support provided to various

borrowers in the region. The cost of protecting Dubais paper against default has

quadrupled putting the Emirates in the same league as Iceland.

What went wrong? Was the announcement sudden? Will Abu Dhabi bail Dubai

out? What is the nature and extent of Dubais debt burden? What are the future

prospects of Dubai? How can this crisis affect Asian economies in general and

Pakistan in particular? These are important questions and an attempt has been

made to answer them.

17


18/66


Dubai witnessed an uninterrupted explosive growth over the last several years at

the back of easily available cheap credit. Such an impressive growth not only

created excess capacity but also bred over-confidence. The absence of oil wealth

encouraged Dubai to diversify its economy by developing trade, tourism, transport

and real estate. Also, a series of free zones dedicated to different sectors of the

economy succeeded in attracting world-class companies and as such Dubai had

positioned itself as the financial and economic hub of the Middle East. When the

going was good, Dubai never looked back and continued to over-leverage itself,

thus accumulating a debt of over $80 billion or 100 per cent of the GDP. In plainlanguage, Dubai was carried away by its own success.

Last years global economic meltdown halted the pace of economic activity in

Dubai. The non-oil sectors that Dubai developed over the years were hit hard by

the global economic crisis. The value of the assets within and outside the Emirates

dropped sharply and incomes from tourism, hotel and airline continued to decline,

thus creating cash flow problems. The rise of sunk investment eroded Dubais

debt-carrying capacity.

The chapter on Dubais financial crisis was already written some five months ago.

The Economist, in its July 11 issue this year, published an excellent article under

titled Trouble in the United Arab Emirates warning about the brewing financial

crisis in Dubai by the year end. What an accurate forecast it was. The Economist,

quoting Standard & Poors (S&P), stated that the risk to Dubai economy has

increased substantially and that the uncertainty regarding the governments

willingness to provide support to Nakheel was rising as well.

18


19/66


The fact that Dubai will be facing a serious debt crisis was known to the market as

well as to the authorities. It is in this perspective that in February 2009, Dubai

wanted to raise $20 billion in a phased manner to honor its debt obligations. In

February this year, the UAE Central Bank bought a $10 billion bond out of the

proposed $20 billion transaction. On November 25, two Abu Dhabi state-owned

banks bought another $5 billion bond, leaving $5 billion to be issued later.

Dubais debt payment obligations reached an unsustainable level. Some $13-17

billion is said to be due in 2010 with almost $5 billion due in the first quarter. TheS&P has estimated that up to $50 billion worth of debt will have to be repaid by

2012. Realizing the unsustainable debt payment obligations, Dubai took a decisive

action to address its debt problem without apparently taking Abu Dhabi into

confidence.

Dubai is wounded and its reputation is badly damaged. It will now be more

dependent on Abu Dhabi for a bail-out. It goes without saying that the economies

of Abu Dhabi and Dubai are too enmeshed to allow one part to fail. Abu Dhabi

will certainly bail Dubai out of the crisis. However, there would be no blank

cheque for Dubai. Abu Dhabi will not like profligacy of Dubai to continue on the

back of its financial resources but at the same time it will bail out Dubai on a case-

to-case basis to avoid a serious long-term negative impact. Dubai, for its part, will

not be able to make economic or political decisions that Abu Dhabi finds

disagreeable. The latter would also like to demand a stake in some of Dubais

healthy assets in exchange for financial support. Furthermore, Abu Dhabi would

push Dubai to adopt a more conservative development model.

19


20/66


Dubais crisis can be contained and will not upset the world economic recovery.

Sufficient financial resources and willingness exist in this region to contain the

fire. Asian economies in general and Pakistans economy in particular are not

expected to experience a significant negative effect as the exposure of their banks

in UAE are very limited and should not be a source of concern. As far as workers

remittances are concerned, its rate of increase is expected to moderate in the short-

to-medium term because Dubais economy is also expected to grow moderately.

It takes years to build the confidence of the global investors but it takes just onemoment to shatter them. This is what Dubai did last year. Much will now depend

on the way Dubais authorities unruffled foreign investors fears.

20


21/66


EFFECTS OF DUBAI CRISIS

A storm broke out in last November, emanating from the part of the world that is

widely seen as a major beneficiary of the rise in oil prices. Yet Dubais story is not

about oil. Indeed it is precisely the absence of oil and natural gas (less than 6% of

GDP) that prompted this emirate go down the path of tourism, hospitality, and

commercial real estate development, that lies at the heart of the matter now.

The financial crisis in Dubai continues the Tower of Babel curse. Attempts to build

the tallest building in the world require such investor euphoria and access to capital

that they frequently mark a top of the cycle. Burj Dubai, which was topped earlier

this year did not just edge out the former giant Taipei 101, but leapt above it (at

818 meters vs. 509 and 162 floors vs. 101).

Twice Told Tale

It has been clear for some time that Dubais opulent construction of an adult play

ground in the Middle East was a bit over the top and that its projects were designed

for radically different economic conditions. There have been reports of largely

empty luxury hotels, unfinished projects, partially built buildings and more

difficult credit conditions.

Construction companies, suppliers and foreign workers have reported that the

commercial real estate bubble has popped. Earlier this year, Nakheel, the property

company owned by Dubai World, which is the chief protagonist, received financial

support.

Like the similar reasoning that the US Federal Deposit Insurance Corporation

(FDIC) often uses in announcing bank closures after the markets have closed on a

Friday(in november), Dubai Worlds request for a six month standstill on the

21


22/66


servicing of its $59 billion of debt, including a $3.5 billion sukuk (Sharia

compliant bond-like instrument) that was to mature in December. The usual lack of

transparency, coupled with the region religious holiday and the Thanks giving Day

holiday in the United States, made for extremely thin market conditions and

encouraged risk-minimization and defensive actions.

Matters were further complicated by the postponement of a Dubai World press

conference and a computer glitch at the UKs London Stock Exchange, which

incidentally but unrelated is reportedly a fifth owned by the Dubai.

Many believe that as goes Dubai World so goes Dubai, and expect its larger andricher neighbor, Abu Dhabi to exact political concessions in exchange for

providing support. Dubai World accounts for roughly three quarters of Dubais

debt and about half of Dubais $25 billion remittances.

There are seven emirates in all that make up the United Arab Emirates (UAE).

Dubais GDP of roughly $40 billion accounts for something on the magnitude of

2% of UAEs GDP. Yet what ails Dubai appears to be affecting the UAE as whole.

Some reports indicate that nearly half of the $582 billion construction projects are

on hold or simply cancelled.

IMPLICATIONS

There are a number of channels by which the events in Dubai can have a material

impact on the global capital markets even for those who are not directly exposed.

However, we judge the immediate reaction excessive, while at the same time

recognizing that the panicked reaction confirms our suspicion that despite the rally

in risk assets since late March, market sentiment remains fragile and jittery.

22


23/66


First, a review of data from the Bank for International Settlements suggests that

outside of the UK, foreign bank exposure to the UAE itself is rather diversified,

though as one might have suspected, they are concentrated in Europe. Of the

roughly $123 billion UAE foreign obligations, UK banks are responsible for about

$50 billion and Europe as a whole almost $90 billion. US banks account for about

$10.6 billion, while Japanese banks have just shy of $9 billion exposure.

Trying to drill down to the emirate level and company level are a bit more difficult

as the data is hard to find and what is available appears few years old at best.

Nevertheless, while a default by Dubai, should it come to that, would be the largestsovereign default since Argentina in 2001, would do the beleaguered banks no

favors, it probably will not undermine capital ratios in any material sense.

A second potential impact is on the monetary policy of the major central banks.

Central banks in the developed countries for the most part, with the UK a notable

exception, are unwinding some of the extraordinary measures associated with the

crisis, though for the most part (Australia and Norway are the exceptions) stopping

shy of actually raising interest rates. The new albeit mild shock for their troubled

banks and, should the heightened volatility in the global capital markets be

sustained, would seem to encourage policy makers, in anything, to move slower

and more cautiously perhaps than before. We think this is of marginal significance

at the moment.

A third potential impact is on the UAEs peg to the dollar. While the Saudis

stance toward the dollar peg has been unwavering, the UAEs central banker has

been all over the board. In mid-November, Kuwaits basket approach was seen

favorably as an alternative to the dollar-peg, but late in the month, desire to drop

the dollar appeared to have cooled off significantly. The dollars peg among the

23


24/66


Gulf Cooperation Council, except for Kuwait, is an element of stability and may be

marginally less likely to be jettisoned now than before.

CHART OF INFLATION:

24


25/66


BANKING SECTOR

25


26/66


EFFECT ON EMPLOYEES

It took a recent trip to Dubai for me to get my first true, honest glimpse of the

current economic crisis that is so profoundly hitting every corner of the world. As I

roamed the grand streets of Dubai, they lay empty, rendering the city a mere ghost

town of what I had imagined it would be. As I chatted with locals, they gave me a

glimpse into a much different Dubai. They informed me that previously it had been

impossible to get a dinner reservation without at least two weeks notice. A wait

for a requested taxi being less than a few hours was also a thing of the past.

Horror stories of thousands getting laid off and having to flee the country because

they could no longer afford their mortgages escaped their lips as if they had been

waiting for an opportunity to get these eye-witnessed nightmares off their chest.

Unlike in the United States and the United Kingdom, if you default on your

mortgage or loans in Dubai, you are thrown in prison. This severe punishment has

caused many laid-off workers to flee the country in an effort to avoid jail time.

These escapees literally abandon everything they have acquired during there stay

in Dubai. With only two suitcases in hand, they then drive to the airport, where

they leave their keys and a note that says, Return to Dealership in their leased

cars.

26


27/66


BURJ AL ARAB IN DUBAI

THE WORLD'S FIRST SEVEN STAR HOTEL

My eyes now wide open I asked one local Arab, If we

are in a worldwide recession, then are the billionaires

of the world still staying in the Burj Al Arab, the

worlds first seven-star hotel? He replied, That hotel

has never nor will ever profit. The Burj Al Arab is

subsidized by the Dubai government as a United Arab

Emirates landmark as opposed to being for-profit

hotel. For the uninitiated, the starting prices for the

Burj Al Arab start at $1,000 and range all the way up

to $25,000 per night.

Things are beginning to look up for the Dubaian population, however. On February

22, 2009, Dubai was given a bailout by oil-rich Abu Dhabi, the wealthiest of all the

countries in the United Arab Emirates (UAE). The Economist reported, The

central bank for the United Arab Emirates (UAE) bought $10 billion-worth of

Dubais five-year bonds. The bail-out confirmed everyones assumption that Abu

Dhabi would not let the second-biggest member of the UAE fail.

27


28/66


IMPACT ON BANKING.

Those banks which provided finance to various projects are feeling pinch of

Dubai crises

Understandably their shares have fallen since.

FALL IN REAL ESTATE PRICES

Building dream projects like the Palm shaped islands, a new urban metro,

the world's largest tower, a waterfront to the size of Hong Kong, a leisure

park called 'Dubai land

LAYOFFS

The already reeling construction industry is seeing a major freefall. Laborers

are asked to go home and whatever little construction projects were on the

anvil, are shelved.

DROP IN DEMAND OF GOLD

Dubai does not produce Gold on its own it seeks exports from countries like

India and re-exports them to other countries.

IMMEDIATE DROP IN OIL PRICES

There was slight drop in oil prices as oil contributes to 6 % in Dubai

economy

This crisis is a setback pushing Dubai to rely more on oil revenue. Dubai has

to pump more oil out to finance its debt and as OPEC is not expected to

increase the production quotas, expecting oil prices to go even lower.

28


29/66


DEPRECIATION IN DIRHAM

The valuation of AED (The local currency of Dubai) saw a drop. This means the

strengthening of the Dollar, by a bit.

29


30/66


EFFECTS OF DUBAI CRISIS ON THE WORLD

Anxiety over Dubais economic health has shaken world markets after

Dubai World, the fulcrum of the emirates economy, announced that it would delay

repayment of some of its debt. The lack of information about Dubais flagship

holding company, which is owned by the government, triggered indiscriminate

selling of stocks linked to the region.

Dubai, which borrowed $80 billion to fuel a four-year construction boom, was

badly hit by the global recession, with home prices halving since the 2008 peak.

The Dubai World conglomerate is the emirates largest corporate entity, with its

businesses covering real estate, port and leisure sectors. The company has asked

for a standstill agreement to delay repayment by six months on most of its $59

billion of debt.

Markets in Asia fell sharply in the backdrop of the disclosure. In Japan, the

Nikkei 225 had lost 3.2 per cent, its biggest one day fall in nearly eight months. In

Seoul, the Kospi dropped by 4.7 per cent marking a four-month decline. Hong

Kongs Hang Seng fell by 4.8 per cent.

The cascading effect of Dubais debt problems were felt worldwide, because the

emirate is the regions key financial centre, and is well integrated with global

markets. Analysts say that any default in debt repayment by Dubai can set a

dangerous precedent, and the contagion could spread, threatening the fragile

recovery of the global economy from recession.

Oil prices have dropped sharply, raising concerns about economic confidence in

the world economy. In the United States, crude oil fell by 5% to $74.23 a barrel

and London Brent Crude oil dropped $1.47 to $75.42.

30


31/66


However, some analysts are of the view that the emirate of Abu Dhabi, which is

rich in oil, and continues to remain financially strong, is expected to bail out Dubai

out of its current financial difficulties.

Fuelled by its oil revenues, Abu Dhabi, unlike Dubai continues to witness as real

estate boom, absorbing South Asian, and especially Indian labour in significant

numbers.

While Dubai is not big enough to set off financial repercussions outside the Middle

East, the main fear is that investors could flee risky markets all at once in search of

safer havens for their money. As in September 2008, when the failure of Lehman

Brothers heightened worries about all financial institutions, they might pull back,

regardless of the markets strength.

The entire markets around the world, expect maybe the Asian markets and the

Lebanese one, are watching closely what is happening in Dubai but those who are

really on edge are the three European Markets that were affected by the shock

while closing their market today, and they are Frankfurt down by 0.45, London

sliding by 0.53% and France shedding by 0.65%.

31
http://topics.nytimes.com/top/news/business/companies/lehman_brothers_holdings_inc/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/lehman_brothers_holdings_inc/index.html?inline=nyt-orghttp://www.forum4finance.com/wp-content/uploads/2009/11/Crisis-B.JPGhttp://topics.nytimes.com/top/news/business/companies/lehman_brothers_holdings_inc/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/lehman_brothers_holdings_inc/index.html?inline=nyt-org


32/66


DUBAI CRISIS NOT TO AFFECT PAKISTAN BANKS

ISLAMABAD (APP) - Pakistans banking sector is very sound and has shown itsresilience during the global financial crisis.

We have well regulated financial system and Dubai debt crisis should have hardly

no direct impact on our banking system, renowned economists and Vice

Chancellor of Pakistan Institute of Development Economics (PIDE), Dr.Rashid

Amjad told APP here on Wednesday.

However, he said that the two economies are closely linked through trade and

investment but we are hopeful that given improved physical and financial

infrastructures Pakistan banking system will be able to weather the current

economic downturn. There is no reason for any bad impact of Dubai crash on

Pakistani banks, a senior banker also observed. He added that only a few

Pakistani banks have little exposure in Dubai.

He said that United Bank Limited and Habib Bank Limited have little exposures in

Dubai as UBL was involved in doing business there but the bank has already

announced that its business would not hurt with this crash. The UBL in a statement

has announced that its UAE balance sheet and operations were healthy and robust

and were no challenged by the current financial crisis in the Emirates.

The Banker further said that the HBL has also exposure in Dubai but is much less

than UBL ,which would be ignore if size of the bank is considered.

32


33/66


WORLD REACTION ABOUT DUBAI CRISIS

BANK OF AMERICA CORPORATION:

Dubais debt woes may worsen to become a major sovereign default that roils

developing nations and cuts off capital flows to emerging markets.

One cannot rule out -- as a tail risk -- a case where this would escalate into a

major sovereign default problem, which would then resonate across global

emerging markets in the same way that Argentina did in the early 2000s or Russiain the late 1990s, Bank of America strategists Benoit Anne and Daniel

Tenengauzer wrote in a report.

A default would lead to a sudden stop of capital flows into emerging markets

and be a major step back in the recovery from the global financial crisis, they

wrote.

RICHARD MCGUIRE, A STRATEGIST AT ROYAL BANK OF CANADA

IN LONDON

"The crisis in Dubai has brought up speculation about how many more skeletons

might be left in the cupboard"

33


34/66


GRAHAM TURNER, OF CONSULTANCY GFC ECONOMICS

"It gives you a picture of the fact that credit problem persists, despite everything

that's been done"

Andrew Clare, professor of asset management at Cass Business School

"This may be the first sign that people are thinking you can't get back to the debt-

fuelled halcyon days of 2007.

"I think this is just part of a wider problem. I just don't understand the basis for the

market rally: equity prices had gone too far. Investors are underpricing all the risksthat are out there, and this is just one of them. Some of those risks are going to

come home to roost, and this is just the first.

"And next year they're going to have the shock of realising that interest rates can

go up as well as down; and you've also got places like the UK, where taxes are

going to have to go up and public spending will have to be cut and the US, too,

has some difficult decisions to make."

GERARD LYONS, CHIEF ECONOMIST WITH STANDARD

CHARTERED

The market reaction shows how vulnerable some economies are to the aftermath

of the debt binge. This highlights how fragile confidence is

34


35/66


JEFF MORTIMER, CHIEF INVESTMENT OFFICER AT CHARLES

SCHWAB INVESTMENT MANAGEMENT

"Markets were getting a bit complacent,"

"This is a wake-up call" that the economic recovery is going to be choppy and

uneven, he added.

Mortimer said of Dubai's debt problems "I don't think it's big enough to be a game-

changer," adding that "It gets my attention. But does it push the trains off the tracks

and is everything lost? Certainly not."

ALAN GAYLE, SENIOR INVESTMENT STRATEGIST FOR

RIDGEWORTH INVESTMENTS

"The Dubai incident raises the intensity of the numbers"

Weak economic data on top of renewed signs credit markets haven't fully

recovered could be enough to send the market lower and set the tone for December

trading.

35


36/66


BENEFICIARIES OF DUBAI DEBT CRISIS

As investors flee debt in Dubai, neighboring Bahrain, Qatar and Saudi

Arabia is likely to pick up much of its Islamic banking business, though the

financial hub is expected to bounce back eventually. While banks and builders

from London to Singapore count their losses from Dubai's troubles, there are also

worries the crisis will hurt its status as a regional centre for sharia finance, which

itself had a hand in the emirate's meteoric rise.

Dubai got down investments as Islamic banking boomed on the back of record oil

prices, drawing throngs of specialist lawyers and bankers attracted by its ease of

doing business and more cosmopolitan lifestyle than its conservative rivals.

The emirate positioned itself as a Islamic finance centre with top lenders like

HSBC, Deutsche, Standard Chartered using it as a base, as it sought to become a

financial hub between Asia and Europe. Much of that money and talent could now

to flow to its immediate neighbors as Dubai slowly works through its mountain of

debt and its shaken financial community exhibits a newfound aversion to risk. Up

for grabs is a bigger share of an estimated $1 trillion Islamic financing industry,

which like conventional banking is back on a growth trajectory as the global credit

crisis ebbs.

Saudi Arabia, Bahrain and Qatar, which also have ambitions of becoming regional

financial centers, will catch up as they are well regulated and have developed at a

more measured pace, bankers told Reuters.

Countries outside the Middle East are less likely beneficiaries, market watchers

say.

36


37/66


Malaysia, for example, has the world's largest Islamic bond market and is known

for more business-friendly interpretations of what is allowed under sharia law than

many Gulf countries, opening the door for a far greater range of financial products.

Its ringgit currency, however, is tightly managed, restricting the ease of investment

flows. Many Gulf currencies, meanwhile, are changed to the U.S. dollar.

37


38/66


METHODS ADOPT TO REMOVE THE CRISIS

Dubai may sell QE2 to tackle debt crisis The high-profile

trophy asset of Dubais boom years may have to be

sold to pay off the emirates mounting debts.

Cruise Ship History: Dubai may sell former Cunard Line QE2 to tackle debt crisis The high-profile trophy asset of Dubais boom years may have to be sold to pay off the emiratesmounting debts. The QE2 competes with the RMS Titanic for media attention.

The QE2 arrives at Port Rashid in Dubai. The Gulf state may have to sell the high profile assetacquired during the boom years.

Dubai World, the state-run company at the heart of a default crisis that has sentshock waves through the global financial system, bought a string of prestige stakes

and properties as the city grew. The team of auditors brought in by the

government, led by one of Britains leading experts in restructuring troubled firms,

38


39/66


is to trawl through all the company assets with no options ruled out, a spokesman

confirmed on Friday.

The dream that will never happen Dubai goes broke and where will the most famous cruise linerin the world end up?

The Daily Telegraph also understands that Abu Dhabi is giving close scrutiny to

non-core assets like the QE2 in the Dubai World portfolio.

Dubais neighbouring emirate has agreed to lend $5bn to the support fund

that is being used to bail out the citys finances, but is reluctant to see any of

that money go to Dubai World until a clear exit from its debt problems has

been plotted.

39
http://www.forum4finance.com/wp-content/uploads/2009/11/Crisis-B.JPGhttp://cruiselinehistory.com/wp-content/uploads/2009/11/27_bz_queenelizabeth2_2_handout_5.jpg


40/66


Nakheel bought the QE2 for $100m in 2007, but by the time it arrived in Port

Rashid a year ago this week its future was already looking uncertain. Since

then, little has been done to put in place ambitious plans to saw off a funnel in

favour of a glass penthouse and refit its suites and ballrooms into a floating

hotel.

It is supposed to be heading off for South Africa so that visitors can look

round during the World Cup next year, at least bringing in some revenue.

QE2 is just one of a string of assets now held by Dubai World. Leaving aside

its port operations and P&O, which it bought in 2005, all of which fall underits DP World subsidiary which is said to be exempt from restructuring, it has

stakes in everything from entertainment companies to London apartments.

Im sure all of the assets of Dubai World will be reviewed, the spokesman

said. The QE2 is one of them. Its part of the restructuring process, though

its too early to say whether theres any sale in mind.

Nakheel has two hotel chains, one of which owns the Turnberry Hotel.

Istithmar World, Dubai Worlds venture capital arm, has stakes in Barneys,

the New York department store, Cirque du Soleil, the South African

entrepreneur Sol Kerzners hotel chain, and Standard Chartered Bank.

The company has also bought into MGM Mirage, the Las Vegas gambling

operation even though gambling is banned in Dubai and Troon Golf.

London properties include Adelphi on the Strand and the Grand Buildings in

Trafalgar Square.

Dubais senior officials are emphasising that progress will be methodical

rather than dramatic, but confirmed that Aidan Birkett, the partner of

Deloittes appointed as chief restructuring officer, had assembled a team in

the city to start going through the books.

40


41/66


Sheikh Ahmed bin Saeed al-Maktoum, the head of the emirates finance

committee and uncle of its ruler, Sheikh Mohammed, said in a statement on

Thursday night that its intervention in Dubai World was carefully planned

and that more information would be revealed next week.

However, investors will not be reassured that the careful planning did not

include informing senior government figures in Abu Dhabi, who were caught

as much by surprise as everyone else by the statement revealing the debt crisis

on Wednesday night.

Officials remain insistent though that Abu Dhabi will stand by its neighbour,both as an emirate and as the senior partner in the federal government of the

United Arab Emirates.

Sheikh Mohammed has previously insisted that Dubai World is a company

and not part of the government, which would not necessarily guarantee its

debts. Abu Dhabi is now expected to reassure the international markets that

default by Dubai World does not imply a wider default that would undermine

confidence in the city or the country as a whole.

41


42/66


ARAB EMIRATES AIM TO LIMIT DUBAI CRISIS IN

PLEDGE TO BANKS

Trying to prevent a run on its banks and stem financial turmoil that some fear

could spread globally, the United Arab Emirates helped calm markets Monday by

pledging to lend money to banks operating in Dubai. But the action comes amid

concerns about excessive borrowing around the world.

A cricket break at a Dubai construction site in 2007. Dubai World invested heavily

in real estate.

A man passed the construction site of Dubais Business Bay on Sunday.

42
http://topics.nytimes.com/top/news/international/countriesandterritories/unitedarabemirates/index.html?inline=nyt-geohttp://topics.nytimes.com/top/news/international/countriesandterritories/unitedarabemirates/dubai/index.html?inline=nyt-geohttp://www.forum4finance.com/wp-content/uploads/2009/11/Crisis-B.JPGhttp://topics.nytimes.com/top/news/international/countriesandterritories/unitedarabemirates/index.html?inline=nyt-geohttp://topics.nytimes.com/top/news/international/countriesandterritories/unitedarabemirates/dubai/index.html?inline=nyt-geo


43/66


The move by the groups central bank was an attempt to head off the kind of crisis

of confidence that froze credit markets last year and brought the global economy to

the brink of failure, threatening everyone from hedge fund billionaires to retirees

who had their savings in supposedly safe investments.

Central bankers and government officials around the world were watching

Mondays stock markets closely for signs that fears are spreading or are being

contained. Asian markets closed up about 3 percent while European markets were

down by less than 1 percent in late-day trading.

Last week, investors fled the stocks of banks with outstanding loans to the tiny

emirate and its investment arm, Dubai World. Now, analysts will be watching to

see whether investors desert other highly indebted companies.

While Dubai is not big enough to set off financial repercussions outside the Middle

East, the main fear is that investors could flee risky markets all at once in search of

safer havens for their money. As in September 2008, when the failure of Lehman

Brothers heightened worries about all financial institutions, they might pull back,

regardless of the markets strength.

Those fears were allayed only after the United States announced a huge bank

bailout and began guaranteeing a variety of borrowing that slowly helped credit

markets begin functioning again. That many of these measures remain in place

could help contain any problems from Dubai now.

43
http://topics.nytimes.com/top/news/business/companies/lehman_brothers_holdings_inc/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/lehman_brothers_holdings_inc/index.html?inline=nyt-orghttp://www.forum4finance.com/wp-content/uploads/2009/11/Crisis-B.JPGhttp://topics.nytimes.com/top/news/business/companies/lehman_brothers_holdings_inc/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/lehman_brothers_holdings_inc/index.html?inline=nyt-org


44/66


But while the United Arab Emirates federation is following a similar strategy,

albeit on a smaller scale, analysts expressed concern that the promise of added

funds to support Dubai banks might not be enough to keep anxiety from jumping

to other countries and institutions.

Indeed, an analysis from Goldman Sachs on Sunday said that the failure of

federation authorities to provide a blanket guarantee for all of Dubais debt showed

that governments worldwide were less willing to bail out overextended companies

and their investors.

This episode represents a timely reminder that emergency public funding support

should not be taken for granted, wrote Francesco Garzarelli, an analyst based in

London for Goldman.

The extent to which the federation and its wealthiest member-state, Abu Dhabi,

which has vast oil reserves, appear to guarantee Dubais debts could affect how

investors view many other companies previously believed to have the implicit

backing of their governments.

A top Dubai finance official, Abdulrahman al-Saleh, director general of Dubais

Finance Department, made it clear on Monday however that Dubai World itself

was not guaranteed by the emirates government.

There are plenty of people around in world capitals who are tired of bailouts,

said Simon Johnson, a former chief economist at the International Monetary Fund.

As a result, banks that made big loans to some heavily indebted governments and

companies might start to incur more losses. The shares of HSBC and Standard

44
http://topics.nytimes.com/top/news/business/companies/goldman_sachs_group_inc/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/organizations/i/international_monetary_fund/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/hsbc_holdings_plc/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/standard_chartered/index.html?inline=nyt-orghttp://www.forum4finance.com/wp-content/uploads/2009/11/Crisis-B.JPGhttp://topics.nytimes.com/top/news/business/companies/goldman_sachs_group_inc/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/organizations/i/international_monetary_fund/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/hsbc_holdings_plc/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/standard_chartered/index.html?inline=nyt-org


45/66


Chartered, which lent heavily to Dubai, have fallen sharply in the last week, and

Mr. Johnson said that the cost of insuring against defaults by big Irish banks has

surged since the Dubai announcement.

A fear of contagion from Dubai would further destabilize European banks that

were only starting to mend.

The Dubai crisis began last week, when the emirate said Dubai World would not

be able to make on-time payments for some of its $59 billion in debt. The company

invested in lavish real estate projects, including artificial islands in the shape of apalm tree and a globe, and spent heavily to acquire stakes in glittering properties

like Barneys in New York and the MGM Mirage in Las Vegas.

Dubai was far from alone in taking on too much debt as companies and countries

around the world did the same. Investors have already been alarmed by problems

in countries in Eastern Europe, in Ireland and in Greece.

Dubais problems are also a reminder of the lasting effects of the global real estate

bubble, which remains a danger in the United States, where several big banks are

encumbered by souring commercial real estate loans.

There is a concern that governments have responded to the financial crisis by

taking on unsustainable levels of debt that they may no longer be able to finance.

Even in the United States, public debt is forecast to rise to around 80 percent, from

about 40 percent, ofgross domestic product, the economist Nouriel Roubini said.

Dubai could be the beginning of a series of sovereign debt issues or crises, said

Mohamed A. El-Erian, chief executive of Pimco, the giant bond-trading firm.

45
http://topics.nytimes.com/top/news/business/companies/standard_chartered/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/mgm-mirage/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_crisis/index.html?inline=nyt-classifierhttp://topics.nytimes.com/top/reference/timestopics/subjects/u/united_states_economy/gross_domestic_product/index.html?inline=nyt-classifierhttp://www.forum4finance.com/wp-content/uploads/2009/11/Crisis-B.JPGhttp://topics.nytimes.com/top/news/business/companies/standard_chartered/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/mgm-mirage/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_crisis/index.html?inline=nyt-classifierhttp://topics.nytimes.com/top/reference/timestopics/subjects/u/united_states_economy/gross_domestic_product/index.html?inline=nyt-classifier


46/66


What Dubai is going to do is make people think more intensely about the lagging

implications of last years crisis. Its going to be a wake-up call to the people who

thought that the financial crisis was just a flesh wound.

Many analysts expect federation authorities to release further details as soon as

Monday on how they plan to restructure the debt of Dubai and Dubai World to

keep markets calm.

Analysts will be watching crucial indicators of stability or alarm. The most

apparent will be if money is pulled from other investments to the safe havens.Analysts will be monitoring the amount of interest that investors demand to lend

money to emerging market countries. It has already risen sharply since the Dubai

crisis erupted on Wednesday.

A major worry, investors say, is that the global debt crisis in private debt could

metastasize into a debt crisis for governments that are running mounting deficits to

pay for bailouts and stimulus packages especially in Eastern Europe but also in

Britain.

In fact, a warning sign has already started flashing: the cost of insuring debt issued

by Greece, a member ofthe euro bloc, is now as much as insuring Turkeys debt,

an investment that was once considered much riskier.

One consequence of the global financial crisis is that Greece has been forced to

take on shorter-term external debt. Debt securities due within a year have risen to

$24 billion in the second quarter of 2009, from $14.5 billion at the end of 2007,

according to figures from international economists.

46
http://topics.nytimes.com/top/reference/timestopics/subjects/c/currency/euro/index.html?inline=nyt-classifierhttp://www.forum4finance.com/wp-content/uploads/2009/11/Crisis-B.JPGhttp://topics.nytimes.com/top/reference/timestopics/subjects/c/currency/euro/index.html?inline=nyt-classifier


47/66


Many countries may face tests in the weeks and months to come as they try to roll

over their existing debts. These countries will not be able to raise money easily or

cheaply. This could put pressure on stronger members of the European Union to

bail out weaker members, or at least help them restructure their debts and nurse

them back to health.

So strung out was Latvia this year that the country barely recovered from a

speculative attack on its currency, the lat, though it is a member of the European

Union. As it teetered, economists fretted about a coming lat bath, like the Thai

baht bath devaluation that set off the 1997 Asian crisis.

The International Monetary Fund, World Bankand European Union stepped in to

prop up the weakest countries, however, and fears of true sovereign defaults in

Europes most vulnerable countries receded before last weeks turmoil. These

institutions guarantees, however, do not extend to state-backed companies.

Hungary, Bulgaria and the Baltic states of Latvia, Lithuania and Estonia carry

foreign debt that exceeds 100 percent of their gross domestic products, Ivan

Tchakarov, chief economist for Russia and the former Soviet states at Nomura

bank, said in a telephone interview from London.

But the problems, if any, are likely to be limited to Europe. The tremors would not

immediately spread to the United States, beyond the effects of the strengthening of

the dollar, and potentially a weakening of commodity prices as investors bet on a

slowdown in emerging markets.

However, in the long run, a global credit crisis set off by Dubai would make the

cost of financing the trillions of dollars in American debt much more expensive,

47
http://topics.nytimes.com/top/reference/timestopics/organizations/e/european_union/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/organizations/w/world_bank/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/nomura-holdings-inc/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/subjects/c/currency/dollar/index.html?inline=nyt-classifierhttp://www.forum4finance.com/wp-content/uploads/2009/11/Crisis-B.JPGhttp://topics.nytimes.com/top/reference/timestopics/organizations/e/european_union/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/organizations/w/world_bank/index.html?inline=nyt-orghttp://topics.nytimes.com/top/news/business/companies/nomura-holdings-inc/index.html?inline=nyt-orghttp://topics.nytimes.com/top/reference/timestopics/subjects/c/currency/dollar/index.html?inline=nyt-classifier


48/66


Mr. Roubini said. Even the U.S. over time cannot run forever unsustainable

fiscal deficit, he said. The total financing needs of the U.S. will range in the $1.5

trillion to $1.7 trillion a year for the next decade, he said. That is a huge amount

of public debt to issue and or roll over.

48


49/66


DUBAI'S ECONOMIC REBOUND

Dubais biggest merger ever may be only way out of meltdown

Dubais Emaar Properties announced it is expecting a huge merger to be completed

within four months with three real-estate units of Dubai Holding, which is owned

by the ruler of the Dubai, Sheikh Mohamed bin Rashid Al Maktoum, also the vice

president of the United Arab Emirates. The merger will consolidate Dubai

Properties, Sama Dubai, and leisure developer Tatweer who are all prominent

players in a sector badly hit by the global financial crisis. Emaar, the largest listed

49


50/66


Arab developer, of which 31.2 percent is owned by Dubais government and Dubai

Holding hopes the merger get finalized by early 4th quarter of 2009.

Sheikh Mohameds Dubai Holding owns the world-famous Jumeirah group of

hotels lining the highest-premium resort real estate/coastal area of Jumeirah Beach.

By 2011, Jumeirah group (before the downturn) expected to operate or have under

construction some 60 hotels and resorts worldwide with 65-75 percent of the

growth markets in Asia. Dubai Holding subsidiaries also expected to open at least

two additional hotels in Dubai in Healthcare City and Business Bay in 2008.

However, things have markedly slowdown since the financial crisis.

Emaar looks forward to the consolidation that will require due diligence of the

entities, detailed valuation exercise, completion of legal documentation, and

agreement with regulatory authorities in respect of the structure and the process,

and shareholders approval. H.E. Mohamed Ali Alabar, the founding member and

chairman of Emaar Properties, also a member of the Dubai Executive Council, the

supreme body of the government of Dubai has the mandate to synergize all growthinitiatives in Dubai.

Before the meltdown, Emaar Properties was growing at a phenomenal rate world

over, with a plan for global expansion to 36 countries. This Dubai-based public

joint stock company set up in 1997 and one of the worlds largest real estate/

property development companies in the Middle East, was listed on the Dubai

Financial Market. It is part of the Dow Jones Arabia Titans Index. Emaar had

assets in excess of $65 billion in investments, net profit of $1.8 billion and land

bank of half a billion square meters worldwide. Emaar also partnered with Giorgio

Armani SpA to create a worldwide collection of Armani luxury hotels and resorts.

Armani inked the contract with Alabar in an agreement that included the opening

50


51/66


of ten hotels and four vacation resorts within seven years in prestigious locations

such as Dubai, Milan, London, New York, Paris, Shanghai and Tokyo. Since the

recession, bolts loosened up on this deal.

The credit crunch caught on with all pending developments. A few months after

the US and Europe started to feel the pinch, Emaar kept going. Alabar eyed the rest

of Asia and India, claiming theyve managed to weather the storm because they

manage the assets of Emaar like a little Chinese shop... We dont like points. We

dont like to pay a lot of dividends because were not new to the field, he said

with confidence. Emaar kept dreaming and hoping big while dipping into the

world's tallest tower in Dubai - the Gulf's tourism and trade hub that was to

challenge any skyscraper shooting up to more than 1.6 miles.

But, as soon as Dubai started broadcasting it was recession-proof, the market

began showing cracks. Not before long, Dubai resort and real estate markets

proved no one was immune from the crash. Sooner than later, Dubai jumped in on

the bandwagon like most of the rest of the world.

Nakheel, one of the worlds biggest and busiest property developers famous for the

large colony of man-made islands in Dubai, showed signs it too was hurting. The

world-famous Palm Islands have had its growth stunted by the economic

meltdown. Nakheels portfolio including the Palm Trilogy, The Waterfront and

The World, each boasting iconic and radical designs (respectively, the palm tree

national sign, the striking peninsula and the cluster of 300 islands forming a world

map built on reclaimed land) began unprecedented sales decline. Though tough

to do, Nakheels CEO admitted not making any sales in the last months and the

firm's first sukuk, worth around $3.6 billion would coming up for renewal in

51


52/66


November 2009 is in trouble. Unfortunately, huge funds mishandled during

construction may have contributed to the end of construction. Earlier in April,

reports said Nakheel was at the center of a crackdown on alleged corruption in the

emirate of Dubai. Two people were arraigned on suspicion of bribery days before a

high-profile sales team led by its CEO, headed to the USA to lure investors to

Dubais $300 billion property boom.

Property prices in the seaside emirate with its iconic palm tree-shaped islands

continued its slump since last year when the global economic crisis and a drop in

oil prices ended an economic boom in the Gulf region.

The slowdown has led to project cancellations worth hundreds of billions of

dollars. Dubais Tatweer project called Bawadi, a destination by itself saw the

danger looming ahead. Tatweer, a company owned by Dubai Holding, was

developing en-masse its own hotel clusters with a total of 60,000 rooms in three

clusters. Bawadi wanted its own 30,000 keys, to run the investments, own all

business plans and do all feasibilities. They have also signed up with Emaar

Properties that owns a piece of land with 5,000 rooms in Bawadi, said CEO Arif

Mubarak who said they were to be the destination managers for the overall project

which was to create the biggest Bawadi hub catering to 51 hotels on the emirate.

Yet, Bawadi, groomed to be Tatweers giant mammoth project, developing a quasi

Las Vegas strip and the so-called Boulevard with a heavily-landscaped shopping

street adapted for outdoor use throughout the year cracked under market pressure.

Construction posed a major challenge. With building costs going up and workers

laid-off in droves, the hotels were never delivered.

52


53/66


And so, the days of positive or wishful thinking are over as the bubble burst in

Dubai. Emaar Properties, Nakheel, Damac, Tameer and Omniyat had been forced

to trim their workforces. Dubailand developer Tatweer reviewed its recruitment

policy in light of the economic situation. Perhaps today, the only saving grace

could be a merger of the biggest developers still alive in the days of dead and

dying deals in City of Gold.

53


54/66


CURRENT SITUATION

The government of Dubai has taken over its flagship company, Dubai World. The

surprising move has caused panic throughout the region, and translated into a

selloff in bank stocks in Europe and Asia. To top that, the government also aims

to delay payments on $60 billion in debt, a request that caused the price of insuring

54


55/66


debt in emerging economies to soar. Dubai, the oasis of ostentatious wealth in the

Middle East, is in trouble.

The shock waves reached stock markets around the world. Investors scrambled to

understand the implications of Dubai Worlds restructuring and unexpected debt

standstill. Markets in Europe closed. However, Dubai officially asserted that its

move was a sensible business decision. According to Sheikh Ahmed bin Saeed

al-Maktoum, chairman of the Supreme Fiscal Committee, While the government

understands the concerns of the market and the creditors, it had to intervene

because of the need to take decisive action to address its particular debt burden.

He added that the government had acted in full knowledge of how markets would

react and said, We want to ensure resources are deployed to enhance the

businesses of Dubai World Group, build on the restructuring and ensure long-

term commercial success.

According to some investors, it was the lack of information about the debt

standstill, announced on Wednesday that was the major reason that caused the

wider turmoil.

55


56/66


CONCLUSION

In spite of all criticism from around the world Dubai still has an hope to bounce

back from this issue. This kind situation is not a new one to Dubai. Earlier during

1991, Dubai faces same kind of problem but it came out that issue tragically. At

that time its sister emirate Abu Dhabi financed to recover from it.

Of course now the amount require to recover from this issue is huge when compare

to earlier. But there is being supported by Abu Dhabi with some limitation.

As of now Dubai may or may not survive in the future. Because day by day its

stock market value coming down due to this issue.

Diversification is not just a buzzword

Debt does matter ... Eventually

Foreign investing can be risky

56


57/66


END STATEMENT

Destroyed the confidence between borrowers and

lenders and it has also shaken the confidence about the

pace of a global economic recovery."

57


58/66


59/66


Dubai World, Dubais flag bearer in global investments (quote from the entitys

website) is another matter. Dubai Worlds debt, approximately $60 billion, is not

guaranteed by the emirates government and Abu Dhabi is showing no inclination

to come to the rescue. The debt must be paid from the cash flow from Dubai World

investments. These assets are described on the Dubai World website:

As a holding company [Dubai World] operates a highly diversified spectrum of

industrial segments and plays a major role in the emirates rapid economic growth.

Its primary aim is to play the role of a growth engine that powers development

both locally and internationally. Dubai Worlds investment spans four strategic

growth areas of 21st Century commerce namely, Transport & Logistics, Drydocks

& Maritime, Urban Development and Investment & Financial Services.

Ironically, in light of the present dire straits of Dubai World, the website says:

The companys business strategy is driven by a combination of pragmatic

acquisitions and prudent investments, designed to deliver real, measurable results

to all its stakeholders.

Dubai Worlds debt burden will be ongoing, as it restructures the terms of the debt

and extends the repayment schedule. Whether the Dubai problems will extend to

other emerging nations is a monumental risk looming over the worldwide

economy.

Effects on the Bloodstock Industry

I was at a corporate board meeting last week and the topic came up of how much

the worth of a company is diminished as its reliance on a single customer

increases. Everyone agreed that, while the single customers business is essential,

59
http://www.dubaiworld.ae/en/index.htmlhttp://www.forum4finance.com/wp-content/uploads/2009/11/Crisis-B.JPGhttp://www.dubaiworld.ae/en/index.html


60/66


the overall value of the company is less than it would be if the customer base were

widely diversified. The 80-20 rule of thumb says that, for most companies, 80% of

the revenues and profits derives from 20% of the customers. In some cases, 95% or

more come from a very small percentage of customers and this dependence

dramatically ramps up the risk for a company in such a vulnerable position.

Sheikh Mohammed bin Rashid al-Maktoum and his far-flung breeding and racing

empire (Darley and Godolphin) constitute a single-customer threat to bloodstock

businesses and racetracks worldwide. He has been the leading buyer at

Thoroughbred auctions for years and, in fact, is the most important purchaser in

modern history. Were he to sneeze, so to speak, the bloodstock industry would get

pneumonia.

John Ferguson, Sheikh Mohammeds chief bloodstock advisor, commented on the

debt dilemma in Dubai by saying that the Sheikhs racing and breeding operations

are separate from the imperiled business operations. This is no doubt technically

true, but still does not mean that the racing interests will be unaffected. In the first

place, one would assume that the Sheikh has a significant portion of his personal

fortune invested in Dubai World. Even if this is not true, there could be public and

investor pressure for him to show some sharing of the pain by cutting back on

lavish spending, including bloodstock expenditures at public auctions and

extraordinary purses at the Dubai World Cup competition. Whats more, the debt

crisis is likely to result in a lowered standard of living for his subjects, which

should be a governor on ostentatious consumption by the ruler. Finally, the federal

government of the UAE may stipulate restrictions in return for the bailout.

60


61/66


It is easy to counsel the bloodstock and racing industry to diversify and expand its

owner base so as to reduce its reliance on Sheikh Mohammed. That, of course, is

difficult to achieve. I once served on the board of a Nasdaq-listed company whose

biggest customer was Home Depot. It takes a lot of average companies to hedge

the risks of losing such a behemoth as Home Depot. Similarly, the Thoroughbred

Owners and Breeders Association would have to recruit a multitude of wealthy

new owners to compensate for a giant cutback in spending by Darley.

IMMENSE ENTREPRENEURIAL RISK-TAKING

Sheikh Mohammed is to be commended for endeavoring to diversify the economy

of Dubai in anticipation of the day when oil revenues ebb. In the long run, his

subjects would be better off by not being oil dependent. However, Dubai appears

to have attempted to grow too much too fast. As a result, since 2008, residential

real estate prices have fallen by 50% and 41% of commercial space is vacant.

Unfortunately, the Sheikhs ambitious vision was implemented, with a mountain of

debt, at almost precisely the same that the world economy plunged. Consider the

expanse of the projects undertaken by Dubai World:

Its portfolio comprises some of the worlds best known companies and a number

of outstanding projects. This includes DP World, one of the largest marine terminal

operators in the world; Drydocks World & Dubai Maritime City designed to turn

Dubai into a major ship-building and maritime hub; Economic Zones World which

operates several free zones around the world including Jafza and TechnoPark in

Dubai; Nakheel the property developer behind iconic projects such as The Palm

Islands and The World among others; Limitless the international real estate master

planner with current development projects in various parts of the world;

61


62/66


Leisurecorp a global sports and leisure investment group, reshaping the industry by

unlocking value across investment, development and brand opportunities; Dubai

World Africa which oversees the regional development and portfolio of

investments in the African continent.; and Istithmar World, the groups investment

arm that has a global footprint in finance, capital, leisure, aviation and various

other business ventures. (Source: Dubai World website.)

The Sheikhs intent for his people was correct and his vision was bold. His timing

was bad, but then, no one sees the future. Perhaps Dubais debt problems will turn

out to be a detour to the future rather than a dead end. The bloodstock industry has

a lot riding on the outcome. Dubai Worlds motto is The Sun Never Sets on

Dubai World. Lets hope not for the sake of bloodstock and racing enterprises

worldwide.

62


63/66


GLOSSARY

AB

Burdened- Loaded/ TroubledEthics- Morals/ Beliefs

C

Conglomerate- Corporation/ FirmConservative- Traditional/ Intentional

Concession- Allowance/ Give up

D

Dynasty- Family/ houseDecisive- Important/ Critical

Diversified- To change/ Alternative

E

Engine- Neck of land

Epitome- Essence/ PersonificationExposure- Contact/ Introduction

F

Fragile- easily broken/ DelicateFinancier- Banker/ Investor

Fall out- Argue/ Disagreement

G

Glittering- Impressing/ SparkingGlitch- Fault/ ProblemGiant- Huge/ Massive

H

63


64/66


Hub- Heart/ CoreHalted- Freeze/ Store

I

Insurance- Cover/ ProtectionJ

Jurisdiction- Authority/ ControlJettisoned- Real/ Original

K

L

Leapt- Emerge/ Bind

M

Municipality- City/ Town

N

O

Opulent- Wealthy/ Lavish

P

Plunging- Loaded/ TroubledPlummeted- better/ FairPostponement- Delay/ Deferal

Q

R

64


65/66


Restructure- Reform/ RecognizeRecessionary- Decline/ Collapse

Reclamation- Recovery/ Retrieval

S

Substantial- Considerable/ ExtensiveSpectacular- Stunning/ Impressive

Sovereign- Ruler/ MonarchSpeculation- Conjecture/ Rumor

T

U

Unruffled- Unmoved/ StoodUnwavering- Firm/ Solid

V

W

Wholly- Completely/ TotallyWoe- Sadness/ Misery

X

Y

Z

65


66/66

intro of dubai

Documents