DUBAI, United Arab Emirates (AP) — It was the celebrity endorsement marketers dream about.
Before harnessing up to film stunts for the next “Mission: Impossible” on the face of the world’s tallest tower, Tom Cruise bounded onto stage in the skyscraper’s plush new Armani Hotel to promote shooting in Dubai. With cameras rolling, he thanked the emirate’s ruling sheik and praised the city as “very cinematic,” deeming it “beautiful” four times in under a minute.
Publicity stunt it may have been. But the filmmakers’ decision to set a large part of the movie here also reflects the headway Dubai has made on its own tough mission: to again charm investors and repair its reputation a year on from its market-rattling financial crisis. It’s a task that could take years to complete.
The pint-sized Persian Gulf emirate sent tremors through the world economy a year ago this week when it effectively acknowledged it couldn’t repay billions of dollars as promised. Lenders who had relied on government backing for conglomerate Dubai World and a web of other state-linked companies found no such guarantees, leaving them scrambling for details from a city-state as famously tightlipped as it was opaque about the health of its globe-trotting businesses.
Almost overnight, Dubai went from being seen as the Arab world’s glamorous answer to Wall Street and Las Vegas to a city-sized subprime borrower with way too many maxed-out credit cards.
A year on, both those conflicting images contain a measure of truth.
“Across the board we’re probably better off than we were a year ago in Dubai,” said Rachel Ziemba, an analyst at Roubini Global Economics. “But the recovery of the Dubai economy is going to be a lot slower than people anticipated.”
Topping the list of challenges is more than $100 billion in Dubai debt still hanging over bank balance sheets from Tokyo to New York. Some state-owned holdings have been quietly sold off. Others are struggling. Just last week Loehmann’s, an 89-year-old U.S. clothing retailer owned by the emirate, filed for bankruptcy protection.
Bankers grumble that financial transparency is still lacking — an indication of a lesson not completely learned. While Dubai has begun to crack open its books, the full extent of its debt problems — and its ability to fix them — remain unclear.
Even the half-mile-high Burj Khalifa that Cruise rappelled down isn’t immune. Apartment owners there have had to slash rents amid a property slump that shows few signs of improving. Across the city, prices have plunged by half since late 2008 as tens of thousands of residents — mostly foreigners who comprise the overwhelming majority of the population — lost their jobs and left.
A glut of new homes planned years ago and soon coming to market could make things even worse.
“We’ve still got a bit more to go before we hit the bottom,” said John Davis, regional CEO of real estate firm Colliers International.
The debt pile and property woes don’t mean Dubai is done for, though.
The sheikdom in many ways has proved surprisingly resilient, using the past year to clean up some of its worst excesses as investors’ concerns shifted to struggling European debtors such as Ireland and Greece.
Managers at the most troubled Dubai companies have mostly been replaced. Plans for even more audacious skyscrapers and manmade islands like those that made Dubai famous — and in debt — are on the back burner.
There are other signs of improvement. State-owned airline Emirates more than quadrupled its first-half profits, recently pulling in nearly $1 billion. Business at Dubai’s global collection of seaports is looking up.
At home, footfall on the polished stone floors of shopping centers like the aquarium-filled Dubai Mall remains brisk. The city’s infamous traffic jams are less frequent. Living costs are down.
And yes, despite headlines suggesting Dubai was becoming a ghost town, things are still being built. Alongside the skyscrapers there has been a renewed focus on less splashy but much-needed public works projects such as highway interchanges and another sleek new metro line. A second airport opened in June.
Put simply, the emirate’s attention has shifted back to the historic strengths that turned it into the Middle East’s commercial hub: trade, tourism, logistics and services.
“There’s now time for smaller ideas, things that are more organized,” said Mishaal al-Gergawi, an Emirati writer and entrepreneur.
With his wife Bushra, a graphic designer, he is launching a line of T-shirts and other products with the slogan “iamherebecauseilikedubai.” He says it’s a statement meant to highlight the positive aspects of Dubai and those working to build it back up.
“The crisis is what it is,” he said. “It happened. And then you deal with it.”
Dealing with the fallout of the crisis will take years, analysts say. Some important progress has been made in sorting out the books at Dubai World, the sprawling conglomerate at the heart of Dubai’s financial mess. It recently won support from creditors for better terms and more time to repay nearly $25 billion in debt.
Helping shore up Dubai’s finances were $10 billion in fresh funds pumped in by its oil-rich neighbor Abu Dhabi late last year. The bailout prompted speculation the conservative emirate — home to the UAE’s federal capital — would wring concessions from its freewheeling neighbor.
Dubai’s ruler, Sheik Mohammed bin Rashid Al Maktoum, unexpectedly renamed the world’s tallest tower after Abu Dhabi’s ruler, Sheik Khalifa bin Zayed Al Nahyan, on opening night in January. Aside from that gesture, however, there has been little indication Abu Dhabi is playing a more active role in Dubai’s businesses or aims to take over its star companies.
Part of that may be a concern about undercutting Dubai’s image. Abu Dhabi also has its own challenges. Bank of America Merrill Lynch recently warned that the Abu Dhabi government-linked developer that built that emirate’s futuristic new Formula 1 race track complex needs as much as $2.7 billion in additional funds to survive.
For Dubai, securing a deal with Dubai World’s creditors was just the first step in cleaning up the emirate’s debt problems.
Nakheel, the government-owned builder of Dubai’s manmade palm islands, is still working to restructure at least $10.5 billion of debt it owes.
Dubai Holding, a conglomerate owned directly by Dubai’s ruler, has multibillion-dollar financial problems too. A government official revealed last week that $2 billion in state aid has been injected into it as it tries to hammer out new repayment terms with creditors.
Meanwhile, a number of Dubai assets have been sold off to raise cash, including stakes in theme park operator Merlin Entertainments, electronics maker Sony, Airbus parent EADS and Indian airline SpiceJet.
Others have gone involuntarily. Among them was the W Union Square hotel in New York, which Dubai World lost in a foreclosure auction late last year.
Analysts say the emirate needs to sell more over the coming years to keep paying the bills, but now has some breathing room to manage the process.
“Will we see fire sales? I don’t think so,” said Ziemba, the analyst. But, she added, “they’ll probably be looking for opportunities when the price is right.”