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Friday, 18 December 2009

Leader in Finance, Property — and Debt

When its oil began running out, as its pearl industry did years earlier, Dubai set out to repurpose itself as a world capital of finance and real estate ― two very bad bets in 2009, as it turned out.

Dubai is one of the seven emirates, or city-states, that make up the Persian Gulf's United Arab Emirates. In the boom years, it dreamed no small dreams, attracting huge amounts of foreign capital and huge numbers of foreigners. Only 17 percent of its 1.5 million people are UAE nationals.

Dubai quickly became a world leader in superlatives. The Burj Al Arab, a sail-shaped building on an artificial island that is billed as the world's second-tallest and most expensive hotel. The world's largest manmade port. The world's tallest tower. An enclave of artificial islands laid out like a map of the world. Three artificial islands shaped like palm trees said to be visible from space. And, when and if it's finished, the world's first underwater hotel.

FACTBOX-Key risks in the Middle East in 2010 | Reuters

FACTBOX-Key risks in the Middle East in 2010
| Reuters

The world economy: The Great Stabilisation | The Economist

The world economy: The Great Stabilisation | The Economist

Emaar's India venture sees light ahead

Shravan Gupta, the managing director of Emaar’s Indian joint venture Emaar MGF, hopes his luck is finally changing and he can get the company’s investment plans back on track.

Last month, when he began a tour of fund managers and investors in Singapore, London and New York, pitching his plan to raise around US$860 million on the Indian stock exchange in May, Dubai World announced it was seeking to delay debt repayments.

The news caused concern among potential investors but Mr Gupta pressed on. After all, two years earlier, when the company last tried to tap new investment, his timing was similarly off.

Lawyers warn tribunal may go against treaties

Lawyers are warning that the powers of a new tribunal governing disputes linked to the restructuring of Dubai World’s debt may lead to conflict with international treaty obligations on arbitration.

Many of Dubai World’s largest trade creditors have clauses in their contracts that allow them to take disputes with the Dubai Government-controlled company and its subsidiaries to international arbitration.

Those agreements may have been thrown into uncertainly after the Dubai Government issued a law on Monday establishing a special tribunal of Dubai International Financial Centre (DIFC) Court judges to preside over negotiations between the company and its creditors.

Dubai turnaround may be a quick one

Dubai’s bid for greater transparency and disclosure will help the emirate maintain its place as the region’s financial centre even as it deals with a US$85 billion (Dh312.2bn) debt load, a leading emerging markets investor has said.

“We think Dubai will continue to lead the move toward greater disclosure, more transparency and a boom in tourism and knowledge industries,” said Mark Mobius, the executive chairman of Franklin Templeton Investments, a US asset management firm with $33bn under management.

“Of course there are hiccups and problems along the way, but I think the environment is very good for investors.”

How to escape currency volatility and contagion in the globalized world of finance

There has been a lot of talk about sovereign debt risk since the Dubai World panic over Thanksgiving. You have seen pressure not only on government obligations in Dubai, but also in Greece, Spain and Ireland and a spillover into other unrelated markets. At issue is how best to weather a crisis given the Impossible Trinity of free movements in capital, independent monetary policy and fixed exchange rates. A country can pick two, but no one can have all three.

The hallmark of a crisis is the wholesale and indiscriminate move to safe havens by investors. The likelihood of market contagion is huge as was well demonstrated during the Asian Crisis and Russian devaluation in 1997-98 and the collapse of LTCM. The events in Dubai certainly show this as well.

How do you protect your domestic financial markets from this kind of thing? Different foreign exchange regimes can be useful in preventing worst case scenarios. But, every solution has its problems; there is no magic bullet for countries looking to escape the volatility of financial market globalization. Until we develop a more stable currency framework, you can expect volatility to play out via FX.

Debt could derail Dubai's big-money events

Dubai's ability to host big-money events in tennis, golf and horse racing is coming under scrutiny as the emirate struggles with massive debt.

Many wonder whether the Persian Gulf sheikdom can afford to continue bankrolling high-profile events that offer lucrative prize money.

"I suspect there could be slight cuts in prize money," said Sean Ennis, a professor of sports marketing at the University of Strathclyde in Glasgow, Scotland.

Selling Dubai

Members of Dubai’s financial elite were in Washington on Thursday trying to show they were on top of Dubai’s problems and had a strategy for digging themselves out of their financial mess. Among the stops on their tour: Treasury Secretary Timothy Geithner, International Finance Corp. chief executive Lars Thunell and the Peterson Institute for International Economics, a think tank.

(The IFC is part of the World Bank, whose president Robert Zoellick was flying back from the climate conference in Copenhagen.)

At the Peterson Institute, a crowd of two dozen or so academics and financial experts peppered the delegation with questions, says those who attended. Mohammed al Shaibani, chief executive the Investment Corporation Dubai, which oversees the government’s investment portfolio, handled many of the questions, say attendees.

He explained that the $10 billion would be placed in a fund — not given directly to the troubled companies—and used to pay off various debts. Bills by contractors would be verified and then paid off in a process aimed at reducing the chance of corruption. Dubai is being advised by banker Michael Klein, a former Citigroup executive, who is accompanying the Dubai group on its rounds.

The group is led by Sheikh Ahmed bin Saeed al Maktoum, chairman of Dubai’s Supreme Fiscal Committee and the uncle of Dubai’s ruler, Sheikh Mohammed bin Rashid al Maktoum.END

Vegas has a lot riding on Aria

Visitors by the thousands streamed into the newest casino-resort on the Las Vegas strip yesterday, an influx that casino officials hope will help yank Sin City from its two-year economic funk.

Fireworks and fanfare inaugurated the official launch of the Aria Resort & Casino, the 4,000-room, 61-story centerpiece of the $8.5 billion CityCenter complex. Crowds began swarming through the doors around midnight, welcomed with cheers and dozens of photographers snapping pictures.

Models stood in the aisles, casino executives greeted guests, and hundreds got a preview of an Elvis-themed Cirque du Soleil show to debut in February.

Sudan Looks to Attract Middle Eastern Investment in Farmland

Sudan wants to attract foreign investors to cultivate vast tracks of land that are currently unused in Africa’s largest country, State Minister for Finance Tarek Shalabi said.

“We have millions of acres of land, very flat and unspoiled and it hasn’t really been even explored yet,” said Shalabi, 41, in an interview on Dec. 15 in the capital, Khartoum. “Sudan is a very good place for agricultural investment.”

Arab countries such as Egypt, Kuwait and Saudi Arabia have started to invest in Sudanese farmland as their own agricultural industries fail to keep pace with their rising populations. Elsewhere in Africa, Indian and other foreign companies are buying up land in a process critics have described as a “land- grab,” exporting food from countries that are not self sufficient.

Dubai offers lessons to China

China needs to learn lessons from the Dubai debt crisis to avoid a similar catastrophic economic consequence despite the different economic weights of two countries. Although the Abu Dhabi government - the largest of the seven emirates including Dubai which comprise the United Arab Emirates (UAE) - has agreed to fund Dubai $10 billion, it is too early to say the crisis has been overcome.

After the Dubai government announced late last month that Dubai World, its flagship conglomerate, was unable to repay a $3.5 billion debt on time, the global capital market was rocked and share prices around the world dropped sharply. As a result, some international rating agencies lowered their credit ratings of other state-run UAE companies and international investors rushed to sell UAE bonds. Because of its huge impact on global markets, some financial experts have even warned of a second round of the global financial crisis.

Dubai World, which is mainly engaged in real estate and ports business, was ranked first among the emirate's state-run investment corporations. With the gradual recovery of world trade, Dubai World's port business has performed well, but its real-estate subsidiary, Nakheel, has been affected badly because of poor market conditions - and directly triggered the latest debt crisis.

Gulf petro-powers to launch currency in latest threat to dollar hegemony (Published 15th December, 2009)


“The Gulf monetary union pact has come into effect,” said Kuwait’s finance minister, Mustafa al-Shamali, speaking at a Gulf Co-operation Council (GCC) summit in Kuwait.

The move will give the hyper-rich club of oil exporters a petro-currency of their own, greatly increasing their influence in the global exchange and capital markets and potentially displacing the US dollar as the pricing currency for oil contracts. Between them they amount to regional superpower with a GDP of $1.2 trillion (£739bn), some 40pc of the world’s proven oil reserves, and financial clout equal to that of China.

Saudi Arabia, Kuwait, Bahrain, and Qatar are to launch the first phase next year, creating a Gulf Monetary Council that will evolve quickly into a full-fledged central bank.

Dubai woes may delay UAE real estate recovery - Goldman

The recent chain of events in Dubai could delay the recovery for the United Arab Emirates real estate sector and put renewed downward pressure on property prices and rentals, Goldman Sachs said.

Data for the third quarter of 2009 suggested the UAE real estate sector was showing early signs of recovery, with prices and rentals beginning to stabilize, Goldman said.

"The extent of the impact on the sector will largely be a function of how the restructuring of Dubai World unfolds - which remains unclear at this stage," the brokerage said.

FREIGHT TRAFFIC: A SIGN OF NO RECOVERY?

Rail freight continues to report dismal figures despite improvement in the sequential data. The latest data showed carloads are down 10.2% vs 2008 and 18.5% vs 2007. Intermodal traffic is down 3% year over year and down 14.3% vs 2007. Despite the weakness, some industries are beginning to show some signs of relative strength.

While 12 of the 19 carload freight commodity groups were down compared with the same week last year, increases were seen in grain mill products (16.1 percent), chemicals (14.8 percent), metallic ores (14.7 percent), motor vehicles and equipment (11.2 percent), grain (8.1 percent), waste and scrap metal (6 percent) and nonmetallic minerals (2.2 percent). Declines in commodity groups ranged from .7 percent for farm products excluding grain to 24.9 percent for crushed stone, sand and gravel.

Total rail volumes year to date are down 16.8% and down 18.1% vs 2007. This far into the equity rally and the so-called economic recovery you could easily begin to make the claim that the economy is not actually recovering at all, but rather bumping along the bottom. After all, if this data is still showing year over year decline (when the economy was falling off a cliff last year) then how much better can things really be?

Dubai's ruler tightens control of emirate's finances

Dubai's ruler sought to boost his oversight of the emirate's finances yesterday when a new law increased control over the budgets of government departments.

Law Number 35 of 2009, covering the management of public funds, introduces procedures designed to control spending, said an official statement. The law, replacing one passed in 2006, requires departments to transfer any excess revenues to the public purse.

The measure covers all departments and includes government companies that have tapped credit markets, such as the Dubai Water and Electricity Authority and the state holding company Investment Corporation of Dubai, which owns Emirates airline and a one-third stake in Emaar Properties, a developer.