Dubai Forums Dubai Discussions Dubai General Chat

http://online.wsj.com/article/BT-CO-20090820-705523.html


DUBAI (Zawya Dow Jones)--Government-owned Dubai World holds almost $60 billion in liabilities on its balance sheet, raising concerns that the sheikdom's debts may be far greater than initially thought, recent figures show.

At the end of last year, the conglomerate had 217.8 billion U.A.E. dirhams ($59.1 billion) in liabilities against AED365.8 billion in assets, according to a statement posted on NASDAQ Dubai's Web site on July 31.

The figures may indicate that the total debt held by Dubai and its government-related entities greatly exceeds the official $80 billion announced last year when the emirate started to come to terms with the global financial crisis.

"The $60 billion is very large and raises concerns and questions," said Fahd Iqbal, an analyst at investment bank EFG-Hermes, adding that it's difficult to judge the impact that the consolidated figures will have on the emirate's total debt position.

The term liability refers to a company's legal debts or obligations arising from its business operations. A detailed breakdown of Dubai World's liabilities wasn't provided in the statement to the bourse by its real estate unit Nakheel.

NAKHEEL BOND

Nakheel was forced to reveal details of its mother company as part its obligations on a $3.5 billion sukuk due in December. Whether the bonds are refinanced or paid off, is weighing heavily on the minds of analysts rating Dubai's government-owned companies.

"The fact that the government is not sending a message of unambiguous support for Nakheel raises doubt in the market regarding the extent to which the government will relieve investors of the substantial refinancing risks of Dubai Inc. generally," said Farouk Soussa, an analyst with ratings agency Standard & Poors, which recently downgraded the credit worthiness of a number of Dubai government-controlled companies.

Both Nakheel and Dubai World declined to comment further on the July 31 disclosure when contacted by Zawya Dow Jones.

Nakheel, which has $80 billion of projects underway in Dubai including the iconic palm-tree-shaped archipelagos, has been hit hard by a near 50% drop in property prices in the emirate. It is entangled in a growing number of disputes over unpaid bills to foreign contractors.

In May, Nakheel said it received funds from the $10 billion that Dubai borrowed from the Abu Dhabi-based central bank. The company declined to say how much funding it got, but analysts at the time put the figure at AED2 billion.

Dubai is planning to raise the second $10 billion tranche of the bond later this year and has set up a support fund to distribute money raised from the bond.

SCALING BACK

Government-owned companies in Dubai are under pressure to restructure as the emirate struggles to bolster an economy that's being hit hard by the global financial crisis and rising costs of financing a mounting debt pile.

Dubai World is just one part of the extended business empire of the emirate's ruler Sheikh Mohammed bin Rashid Al Maktoum that encompasses activities including banking, hotels, airlines and property.

The company, whose interests include ports, real estate and leisure, had AED52.3 billion in revenue last year, the regulatory filing shows.

As the global financial downturn continues to impact Dubai World at home, the conglomerate is reviewing its overseas projects.

On Wednesday, Malaysian power producer and port operator MMC Corp. (MMC CORP.BHD) said Dubai World was reconsidering its investment in a 16 billion ringgit ($4.5 billion) planned maritime center.

Earlier this month, it said it was putting on hold some of its billions of dollars worth of planned investments in Africa due to the downturn.

By Stefania Bianchi, Dow Jones Newswires; +971 4 364-4967; stefania.bianchi@dowjones.com

This goes some way to backing up what I "mentioned" earlier to SH - the real figures that dictate what happens in and to Dubai are starting to come out.

Getting here has been like drawing crocodiles teeth, and represents a huge step forward, transparency at the end of a sword (?)

Sure only history will judge, but for those of a financial bent this makes interesting reading.

I curious here, the debt was issued by Nakheel and other companies right? Not by the Dubai Central Bank. So by law is this a public or a private company?
My take is Bloomberg is hyping up the government owned entity thing.
At the end of the day who is accountable? Who are the investors? Even if the primary shareholder is a Sheikh it does not necessarily imply that it's a public investment. (err.....Right?)
And aren't numerous private companies aldready defaulting on debt and filing for bankruptcy?

As far as public debt goes, Bloomberg stated the Dubai's public assets are to the tune of 1.5 trillion. I don't know if it's fair or book value, or how liquid the trillion may be, but I see no reason why government entities sholud be in trouble.

mo money, mo problems.

G to tha T wrote:mo money, mo problems.

This is the remix for developers wantonly defaulting in dxb:
"no money, mo problems"

1. Dubai does not have a central bank - that sits in AD and is Federal not commercial

2. Nakheel & DPWorld as recently clarified are Public Joint Stock Companies - that is they have issued shares, technically available to the public but in the case of Nakheel they have not listed - so there might only be 100 shares all currently owned by Dubai World.

3. The trick is the ownership pyramid, the company at the top of the food chain is Dubai World Corporation and the ownership of that is always shown in a bubble as "Dubai Government"

Dubai World Corporation (the name corporation, within the group, denotes a government owned commercial entity that can process and approve visa's for example, DW employees all had visas under PCFC)

DWCorp then own 100% of Dubai World Holdings Ltd. a Jebel Ali registered "offshore" company. Now you have two legal entities.

These 2 legal entities then own shares in e.g. Nakheel LLC (2 shareholder minimum for a LLC)

Nakheel LLC then in turn owns Nakheel Holdings 1 Ltd and Nakheel Holding 2 Ltd (both offshore J.A.) Then LLC owns 99% of Nakheel PJSC NH1 Ltd 0.5% and NH2 Ltd 0.5% - you need a minimum of 3 share holders to form a PJSC

4. When debt is issued in the form of a bond or Sukuk the issuing entity is usually the PJSC which is rated as a commercial entity not as sovereign debt.

5. You are mixing terms when you say private companies and public investment - Nothing that Dubai World does is treated as an investment by a "government", it is commercial irrespective of ownership but a number of them are public in that they have equity and debt "owned" by the public and are limited by shars held by the public.

6. The discussion that kicked all this of was when Mohd Al Abbar stated that Dubai was rock solid had $350bn off assets and under $80bn of debt. Where the fair value of any of those assets are currently really depends on the timing of the mark to market (usually year end for real estate but not necessarily, some houses leave it for years marked at book value) but given that 2009 has not gone too well so far the $350bn has probably "come down a bit" and then it is probably fair to say that the total liabilities (as opposed to issued debt) has "gone up a bit".

Its the liberal use of the words "Government" entities that is causing the problem - really its the collective entities controlled by government & they are in the sh*ite as the equity debt ratio is really a lot worse than is openly stated. Thats enough for one post - took so long 'cos i fell asleep in the middle

Take a look at what ICD (Investment Corporation of Dubai) holds & technically thats where DW should sit. (Thats what we class as .gov entities) then DW could be classed differently, but don't expect an easy transition. For example they can't even shift Limitless under Nakheel at the moment

man... I never saw someone who takes it so personal with a "city"... get a girfriend LOL

Misery Called Life wrote:I curious here, the debt was issued by Nakheel and other companies right? Not by the Dubai Central Bank. So by law is this a public or a private company?
My take is Bloomberg is hyping up the government owned entity thing.
At the end of the day who is accountable? Who are the investors? Even if the primary shareholder is a Sheikh it does not necessarily imply that it's a public investment. (err.....Right?)
And aren't numerous private companies aldready defaulting on debt and filing for bankruptcy?

As far as public debt goes, Bloomberg stated the Dubai's public assets are to the tune of 1.5 trillion. I don't know if it's fair or book value, or how liquid the trillion may be, but I see no reason why government entities sholud be in trouble.

Earlier this year the total Dubai debt was reported at around $80bn. Then came Abu Dhabi with a $10bn support for Dubai. Recently they received a $20bn restructuring loan from the UAE Central Bank. Next to that, the semi-public companies can obtain FDI investments.

So lets say total debt is what Bloomberg says: $60bn in comparison with a Dubai GDP totalling: $55bn (due to the global downturn it currently may be a percent or 5 lower) so the economic debt to GDP ratio is about: 110 percent. Thats hefty but manageable if you compare this with other developing nations.

So long as the GDP will remain on level and refinancing remains available then the maturing debt can be serviced. It could mean that e.g. Mubadala (SWF) will have to invest a bit on domestic soil to keep the economy growing by investments if foreign investments would remain low in the near future.

If debt to GDP ration approaches the 130/150+ percent level things get tricky, because a serious sustained economic downturn can result in a debt spiral as countries with declining GDP will have trouble refinancing or servicing its debt. For an emerging economy like Dubai it should be doable in my opinion.

Keep up the good hopes.

The reported debt figure was $80bn

Abu Dhabi issued a $10bn loan to be followed by another $10bn ($20bn total)

This covered public sector services (Police - hospitals ... mentioned by SH in another thread) and was used to cover only the debt servicing requirements of "government" companies.

$60bn debt is now attributed to the Dubai World group of companies ALONE.

Using this Central bank loan to pay off the Nakheel Sukuk will have serious impact on other free municipal services.

Then you need to consider the possible debt burden of Dubai Holdings Group, Emirates Airlines etc to begin to realise that the original $80bn was optimistic to say the least. I get the feeling that $80bn was the number that represented bond issues alone, not the total liabilities - it has to be $120bn + minimum.

That takes the economic debt ratio to scary levels. Then subtract the fudge factor from asset values. Draw your own conclusions - I know of a least 3 global banks that have.

I am glad that the lokals here find this issue amusing as it is there future that is being discussed, not some garbage about all in one swimsuits - again another example of ignorance being used as a defense! Remember these two words .... INCOME TAX

I agree, an income tax and a Value Added Tax are on the option table. I tried to find the article I read some months ago, but unable to find it.

The article said that a 5 percent Income tax would be possible. I forgot what the VAT proposal was.

One thing is for sure, if taxes are applicable, the cost of living needs to come down or wages have to go up. Since the latter won't happen in the medium term, this would not stimulate the influx of migrant workers to Dubai.

I agree Viking Warrior. Taxation is a serious option for government. I don't agree with your estimate of $120bn. Where do you base that number on?

HA I was getting there, eventually income tax will become a reality, VAT almost is. Time for me to invest in a CPA!

The entity might be 60 bill in debt but it's only 3.5 bill that's actually due in the near future. While Real Estate might be down the group is pretty diversified. I mean there ought to be some Cash Flow that should contribute to covering this staggering debt?

It's one twisted pyramid of ownership though.

What's it gonna take for the economy to pick up?
It's purely dependant on a rebounding global economy? If that's the case than an Asian rebound is on the horizon which Dubai could benefit from?

Misery Called Life wrote:HA I was getting there, eventually income tax will become a reality, VAT almost is. Time for me to invest in a CPA!

The entity might be 60 bill in debt but it's only 3.5 bill that's actually due in the near future. While Real Estate might be down the group is pretty diversified. I mean there ought to be some Cash Flow that should contribute to covering this staggering debt?

It's one twisted pyramid of ownership though.

What's it gonna take for the economy to pick up?
It's purely dependant on a rebounding global economy? If that's the case than an Asian rebound is on the horizon which Dubai could benefit from?

Well, the aviation sector is picking up pace. Numbers look better again. Not what they were though.
Shipping sector is hard hit also. Maybe picking up some pace again due to inventory rebuilding.
Real estate is one of the bigger sectors that contribute to Dubai GDP, but that is going through the trough. No growth from that.
Tourism is the biggest sector and they are down 30 to 50 percent. The hotel bookings that do come in are at the lowest discount rates since I've seen them on websites.
What we got more...ah yes, oil sector isn't doing so well. Investments are low due to low oil prices but then again, a declining sector in Dubai.

I think cargo transportation is most significant for short term revival of GDP aswell as the winter influx of tourists.

Not much else to be honest...correct me if I'm wrong.

Dubai is popularly called a transit economy and as such is bound to be affected by a global recession.
But there is infrastructure in place way better than any other ME or African country. Certain sectors are cyclical and recovery will depend on global cues no doubt.
But as Viking stated an immediate concern is the debt situation.
My take is as long as there's liquidity and cash flow we'll weather this storm. No doubt the economy will get hit, but is should'nt be catastrophic.
The pertinant question is are there cash flows? And what is the liquidity situation?
Huge investments have been made in the urban development and maritime and transportation sectors thereby incurring huge debt. Covering that in my opinion is a long term outlook. These sectors may currently be weak yea, but on favourable global cues should rebound. I think that's what they mean when they say the fundamentals are in place.
Now if those fundamentals are flawed...then it's a whole different ball game. Only time will time!
I don't agree that incurring debt is necessarily a bad thing, as long as there are cash flows to justify that debt.Unlike American borrowing which was done so only to fuel consumption.
This is my amateurish take on the situation.

Lets finish off with a positive note:

It can only get better from here onwards

Liabilities for Dubai Holdings = $46.7bn
[Figure from Nasdaq disclosure]

+ Dubai World ($59.1) = $105.8bn

Add the Dxb bond = $128.8bn

Anyone got a lead on Emirates liabilities ? You see where this is going, Dubai's liabilities are almost equal to the total GDP of the UAE on its own!