DUBAI, (Reuters) – As Dubai developers reassured the world their ambitious construction projects would go ahead, officials from the emirate were expected in New York to shore up confidence after a debt landslide threatened its top companies.
A government source said Sheikh Ahmed bin Saeed al-Maktoum, chairman of Dubai’s Supreme Fiscal Committee, and Mohammed al-Shaibani, chief executive of the Investment Corporation Dubai, were due to visit New York and Washington on Thursday and Friday, following a trip to London on Wednesday.
With global markets recovering from two years of financial crisis, Dubai delivered a sizeable aftershock on Nov. 25 when it asked for a standstill on $26 billion of debt linked to its flagship conglomerate Dubai World and its two main property units, Nakheel and Limitless.
This week Dubai’s wealthier neighbour and fellow member of the United Arab Emirates, Abu Dhabi, lent it $10 billion to meet Dubai World’s obligations until the end of April and stave off a bond default by Nakheel, developer of its palm-shaped islands.
Dubai’s government may also repay outstanding 2010 and 2011 Islamic bonds issued by Nakheel and provide further funds to Dubai World, the Financial Times said.
Abu Dhabi’s loan has alleviated immediate concerns, but banks remain uneasy about the billions of dollars they lent to fuel Dubai’s development boom on the assumption the emirate’s or the oil-rich federal government would back the debt. “The headline risk remains, as Dubai World is still involved in a fluid process, so it is still key to proceed the dialogue with international investors,” said Ali Khan, managing director and head of brokerage at Arqaam Capital. “We really need to see more practical implementations: new regulations should be adopted … decisions on legal issues and regulation should be cleared and up to international standards,” said Samer al-Jaouni, General Manager of Middle East Financial Brokerage Co.
Dubai’s developers said their projects were still going ahead.
Development on Nakheel’s The World islands, one of the assets it might look to sell to ease the debt crunch, is set to begin within months, a company spokeswoman said. “Thirty-three islands have been handed over to developers in the past year and since handover they have been working to obtain the necessary design and planning approvals, permits, and titles,” she said. “We anticipate that several developers will be ready to start construction on their islands in the coming months.”
Meanwhile, Dubai Properties Group, a unit of Dubai Holding, which is owned by the emirate’s ruler, said it was committed to completing its Tiger Woods golf course, a rare piece of good news for the world’s top golfer, who has lost a number of his commercial backers since being caught up in a sex scandal.
In the boom years, Dubai lured wealthy visitors and courted the media with celebrity-endorsed projects and developments such as The World, an man-made archipelago in the shape of a world map. But whereas neighbours funded growth with proceeds from soaring oil prices, Dubai borrowed to invest through a network of state-linked conglomerates that offered limited transparency.
Dubai World’s troubles have raised fears among investors that other government-linked firms could also face problems.
Goldman Sachs said events in Dubai could delay the recovery of the UAE’s real estate sector, already hit hard by the global financial crisis, and put downward pressure on property prices and rentals.
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 stabilise. “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.
Goldman, which revised its price targets on top picks Aldar Properties and Arabtec Holding, said the real estate and construction focus in the UAE is shifting to Abu Dhabi from Dubai.
Property prices in Dubai are down about 50 percent from their peaks last year and billions of dollars worth of projects have been put on hold or cancelled since the economic dowturn began.