Up until Wednesday the 25th of November, on the eve of the Eid religious festival, Britain had a mess of its own that it had to deal with. With a widening budget deficit that is expected to hit £175bn, soaring unemployment and increased taxes after the rescue of its local banks, Britain wasn’t expecting the surprise visit of Sheikh Mohammed bin Rashid Al-Maktoum with an empty wallet and a long list of demands. Everyone admired the enthusiasm of the Sheikh to transfer the desert emirate into a high growth finance hub, but with the debt contagion in the country, will it be deserted once again?
On Thursday, in response to the announced moratorium of Dubai World debt, the FTSE 100 plummeted 3%, as investors feared a default by Dubai World would cause a major hit to the already fragile financial system. According to the Bank of International Settlements, Financial institutions in the U.K had advanced $50 billion to the UAE, thus making British banks the largest foreign creditor. Of that, about $5 billion was their exposure to Dubai World, with the Royal Bank of Scotland Group Plc having the largest exposure with about $1 to $2 billion extended, followed by HSBC Holding Plc, Standard Chartered Plc, and Lloyds Banking Group Plc. Due to the scale of the exposure to Dubai’s debt crisis, consultants starting pouring into Dubai to help it deal with the steep debt mountains.
With the help of Deloitte, Rothschild, and Moelis & Company as the main consultants for the company, Dubai World laid off 10,500 employees worldwide in an effort to cutting costs. Abu Dhabi, which had previously provided a cushion of support to Dubai, said in a statement “We will look at Dubai’s commitments and approach them on a case-by-case basis.” While Dubai World’s debt are not guaranteed by the government, there is no question that Dubai will use all of its cards to help the investment vehicle.
Whether the emirate would be forced to liquidate some of its trophy assets due to the cash crisis and settle its obligations is not clear at the moment. Istithmar recently sold two properties in the capital last month for £10m and a share of future profits to Great Portland Estates and with Dubai’s-London property assets valued at £400m, what implications would selling off those assets have on the U.K property recovery? And would that cause an infringement to international relations after the Sheikh’s recent reassurance to the Queen and Gordon Brown that the U.K will not be impacted. Moreover, will the debt crisis affect the company’s plan to build a new container port, London Gateway, which is designed to handle more than 3.5m containers a year and create more than 12,000 jobs? Not to mention the statistic by the Association for Consultancy and Engineering (Ace), which states that U.K engineers and consultants in Dubai are, owed at least £250m.
Dubai World managed companies include: DP World (3rd largest port operator in the world), Economic Zones World, Nakheel (developer of Palms Islands, Dubai Waterfronts, The World and The Universe Islands), Dubai Drydocks, Dubai Maritime City, Dubai Multi Commodities Centre, Istithmar World, Infinity World Development (part owner of CityCenter), Island Global Yachting, Limitless, Leisurecorp, Inchcape Shipping Services, Tejari, TechnoPark, P&O Maritime, Discovery Gardens, and Tamweel.
Below is a list of Dubai World and its subsidiaries direct and indirect investments in the U.K alone. The portfolio consists of, and is not limited to:
Luxury cruise liner the QE2 (£50m)
Tilbury and Southampton container terminals
Turnberry golf course in South Ayrshire
Borse Dubai’s 22% holding in the London Stock Exchange (valued at £462m)
DIC’s ownership of Tussauds Group, Doncasters engineering firm, and Travelodge
London properties include Adelphi on the Strand and the Grand Buildings in Trafalgar Square.
London Gateway
Ownership in Standard Chartered bank
Fuck!
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