The chips are in and the stakes are sexy. They should be, for in contention is one of the world’s most beloved cities-the emirate of Dubai. Just at the beginning of this week, Dubai World emerged from a first meeting with its creditors- asking them for a standstill on US$22 billion of its debt for at least six months. The truth is the whole affair was conducted under an atmosphere of strict secrecy and security, with attendees asked to be tight lipped about the proceedings. What has emerged is that the Dubai World executives formed a Committee to make a presentation for their situation in asking the moratorium. They were assisted by executives from Deloitte and other auditors. What is going to happen now is that the request will be considered in the light of this presentation and the recouping of the assets and liabilities, undoubtedly redrawn to show their ability to remain solvent even after the debt has been repaid.
What is amazing is that even this has not sent enough positive signals through the area. In the long run it just might be required to pay back the debt or part of it in order to block the negative sentiment that has echoed all through the world.
If that occurs, the next question is if Dubai will recover from its current crisis and will that recovery be for a short or a long term. Analysts are divided on the issue, but it’s apparent that Dubai’s Government will itself need to do something in this regard, rather than to wait for the discussion of market forces. It is understood that market forces are driven by consumer and business sentiment, and if that sentiment remains negative or there is uncertainty about future action, markets are going to see a loss of value. By first announcing that it would encourage the thing and later withdrawing its support, it caused mass confusion and in fact set in motion rumors that the emirate itself was in danger of defaulting because of overextending its plans from the boom period. Nothing could be farther from the truth as both Dubai World and the Government of Dubai are well equipped to take care of any financial emergency.
That said, in the short term the Government could assist companies in getting credit to complete the outstanding jobs. The current credit crunch means that new jobs are facing funding problems in getting their projects off the ground. Everyone in the construction industry knows that there is a considerable lag between the booking and the completion of projects. Secondly, by renewing the longer three year visa for employees, Dubai would signal it is prepared to take on expatriate workers again for the completion of old projects and starting new ones. As things are Dubai lodging sector is moving downhill, with lodging in Dubai becoming a buyer’s game. Except for Dubai marina flat, Dubai condos and Dubai villas- which has seen some consistency as well as appreciation in value, generally Dubai flat rent, Dubai Apartments, and Villas in Dubai have depreciated in value during the last few months. A further dip in the industry is expected by March-April 2010, after which the sector is anticipated to recover by 2011. But it’s anyone’s guess as to what will happen, and that is why the Government needs to take steps to see that Dubai is back on track again- the earlier the better. There is too much at stake.