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| From Crisis Rises a Commitment of Rebirth |
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Posted on 5 Mar 2010 |
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In this article, the reader will walk through the trials and tribulations leading to the demise of Dubai's properties market and Abu Dhabi's $10 billion bailout of Dubai World. However, the picture today is not so murky for the emirate as efforts are underway to restructure Dubai's debt and its decision making process. The inauguration of Burj Khalifa has essentially played the role of catalyst to a new chemistry of growth.
Dubai is still reeling from the news about the troubled conglomerate Dubai World facing massive debts despite a temporary $10 billion bailout offered by neighboring Abu Dhabi. Efforts are underway to not only restructure Dubai's debt but also the government's decision-making process, and the Emirate received an additional boost with the January inauguration of the world's tallest tower, 'Burj Khalifa'.
The Emirate of Dubai is a now a sparkling and glamorous city but it did so at the expense of a debt that has reached a figure of about $100 billion. But the immediate media and investor attention is on the $26 billion Dubai World owes its creditors spread in many parts of the world. In November 2009, Dubai's government said it would ask its creditors to freeze debt repayments regarding its loans on Dubai World. The company advisers are currently discussing a proposed debt restructuring agreement with lenders to the emirate's corporate flagship.
In total, the funding commitment from Abu Dhabi and the UAE federal government to Dubai hovers at around $20 billion. But Dubai and Abu Dhabi have been criticized for a lack of transparency around the debt restructuring issue. Everyone knew about the federal government's action in February 2009 when it bought $10 billion worth of bonds to help ease Dubai debts and settle other unpaid bills. But recently, a spokeswoman for the Dubai Department of Finance said the $10 billion funding initially described on December 14, 2009 as coming directly from the government of Abu Dhabi includes $5 billion in funds that had been separately announced in November by two Abu Dhabi-controlled banks. This means that the $10 billion bailout was really $5 billion in total, and though the announcement did help relax fears of a total collapse of the Dubai government at the time, it created more speculation about whether Abu Dhabi is sincere about helping its neighbor. This triggered a snow ball reaction from investors and insurers.
Investors sold off Dubai-related bonds, suddenly worried that Abu Dhabi wasn't willing to step in and rescue Dubai. Investors also hiked the price of insuring against default of other highly indebted governments on their sovereign debt. Even cash-rich governments in the region, such as Saudi Arabia and Abu Dhabi faced difficulties and price jacking when it came to borrowing on international markets. Nevertheless, Dubai has used $4.1 billion of the Abu Dhabi money to rescue Dubai World from bankruptcy. Its premier property development Nakheel needed the money to pay investors on an Islamic bond that had reached maturity. The bond or sukuk is designed to be compliant with Islamic law which prohibits interest payments. Nakheel is the company at the heart of Dubai World and is what made Dubai famous with its daring man-made islands, with projects that have captured the imagination of investors around the world.
The news of the payment initially boosted Dubai's main share index by 10%, while Abu Dhabi's rose by more than 7%. However the bailout immediately fueled speculation that Abu Dhabi demanded Dubai assets and/or policy control over Dubai’s governance in return for the money. The news agency Reuters later quoted unnamed government sources as telling it that there are no conditions imposed on the loan, saying that it was a government-to-government fund and that the terms of the fund were internal to the government of Abu Dhabi and Dubai. Dubai's relationship with Abu Dhabi is close, as both are part of the seven-member UAE state and their ruling families are from the same tribe, but whereas Dubai has an economy based on the services sector, Abu Dhabi relies on substantial oil reserves.
Chairman of Dubai's Supreme Fiscal Committee, Sheikh Ahmed bin Saaed al-Maktoum lately announced the implementation of a new bankruptcy law. 'This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations,' he said. The Sheikh's sobering statement is keeping investors on edge as to whether Dubai World will be able to meet its debt deadlines.
There is currently a climate of fear among property investors in Dubai where property prices have fallen 50% from their peak. For example, Saudi investments in the Dubai Financial Market dropped by 65 percent in 2009 after 189 Saudi traders withdrew from the exchange. Saudi transactions in Dubai fell to 10.3 billion dirham ($2.7 billion) in 2009 from 16 billion dirham in 2008 ($4.2 billion), according to the al-Eqtisadiya newspaper. The daily reports that losses resulted from the Dubai financial crisis in the first and last quarters of 2009, as well as the fallout from Dubai World's debt crisis. In 2008/2009, the Dubai bourse was the biggest loser in the Gulf region, with the repercussions of the financial crisis pulling it down by more than 70 percent.
Recently however, Crown Prince Hamdan bin Mohammed al-Maktoum, head of the emirate's top policy maker, formed five committees to be run by veteran government officials who were put in charge of replacing a generation of young technocrats seen responsible for Dubai's boom and latest bust. The crown prince's father, Sheikh Mohammed bin Rashid al Maktoum, is the ruler of Dubai and the prime minister of the United Arab Emirates. The new team will take over the investment portfolios of the troubled Dubai World and Dubai Holding, the conglomerate owned by the ruler and hit hard by the property crash.
But it was the January 4th, 2010 inauguration of the world’s tallest tower, 'Burj Khalifa', which put life and glamour back into Dubai's real estate sector. The tower was developed by Emaar Properties, a global property developer of shopping malls, retail, hospitality & leisure, education, healthcare and financial services sectors. The company is listed on the Dubai Financial Market and has a significant presence in key markets worldwide.
Thousands were on scene and millions others on their TVs around the world witnessed the unveiling of the Burj Khalifa in a crescendo of fireworks, lasers and fountain displays. The official height of the tower, previously a closely kept secret, was announced as 828 meters (2,716.5 ft). The tower's height breaks all existing world records for tall buildings. Burj Khalifa is 320 meters taller than Taipei 101, which stands at 508 meters, a record for being the world's tallest building which it held since 2004.
Burj Khalifa was built using a record-breaking 330,000 m2 of concrete, 39,000 metric tons of steel rebar and 142,000 m2 of glass and it took 22 million man hours to build. Mohamed Al-Abbar, Chairman of Emaar Properties said that with the unveiling of the final height of Burj Khalifa, the world now had a new reference point for high-rise developments. 'Burj Khalifa is an example of collaboration on a global scale, and the tremendous positive energy that can be generated when people from all over the world come together to work towards a common goal.' It took more than 60 of the world's leading consultants including South Korea's Samsung Corporation and New York-based Turner Construction International to realize the design for Burj Khalifa.
Burj Khalifa employed the latest in wind engineering, structural engineering, structural systems, construction materials and methods, all designed to meet the demands of the 12,000 people who will live and work in the tower. The handover to residents of the various components of Burj Khalifa will begin in February. With a total built-up area of about 6 million ft2, Burj Khalifa features nearly 2 million ft2 of residential space and over 300,000 ft2 of prime office space, in addition to the area occupied by the keenly awaited Armani Hotel Dubai and the Armani Residences. The tower also features modern lifestyle amenities including clubs, health and fitness facilities, gourmet restaurants and the 124th floor observation deck, 'At the Top.'
Burj Khalifa is the focal point of the 500-acre project by Emaar Properties, described as the new heart of Dubai. Downtown Burj Khalifa, anticipated to be home to 135,000 people, encompasses the Dubai Mall, one of the world's largest shopping and entertainment destinations. The Dubai Mall, with over 1,200 retail outlets has revitalized the retail sector and created 10,000 new jobs, attracting an annual 37 million visitors. The Downtown has additionally Souk Al Bahar mall several luxury hotels, offices and homes. Is Burj Khalifa the shot in the arm Dubai needs to survive a so far cataclysmic financial crisis that has crippled the world over? Analysts and economists tell us that the worst is over and knowing the never say die attitude of Dubai's leaders, it looks that the worst is over for Dubai too.
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