The chips are in and the stakes are hot. They should be, for in contention is among the world’s most beloved cities-the emirate of Dubai. Just at the start of the 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 requested 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 presumably assisted by executives from Deloitte and other auditors. What will happen now is that the request will be considered in the light of this demonstration and the recouping of the assets and liabilities, undoubtedly redrawn to demonstrate their ability to remain solvent even after the debt has been repaid.
What’s amazing is that even this hasn’t sent enough positive signals throughout the region. In the end it just might be required to pay back the debt or part of it so as to stop the negative opinion that has echoed all through the world.
If that happens, another question is whether 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 is clear that Dubai’s Government will itself have to do something in this respect, rather than to wait for the discussion of market forces. It’s known that market forces are driven by consumer and business sentiment, and when that sentiment remains negative or there’s uncertainty about future actions, markets will see a loss of value. If anything, the Dubai Government could have supported Dubai World in this period of crisis and given a positive sign to the world. By first announcing that it would encourage the entity and after withdrawing its support, it caused mass confusion and in fact set in motion rumors that the emirate itself was at risk 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 deal with any financial emergency.
Having said that, in the short term the Government could assist businesses in getting credit to complete the outstanding jobs. The present credit crunch means that new jobs are facing funding difficulties in getting their projects off the ground. Everyone in the building industry knows that there’s a considerable lag between the booking and the completion of projects. Secondly, by minding the longer three year visa for employees, Dubai would signal it is prepared to take on expatriate employees again for the completion of old projects and starting new ones. As things are Dubai lodging sector is going downhill, with lodging in Dubai becoming a buyer’s game. Except for Dubai marina apartment, Dubai condos and Dubai villas- which has seen some consistency or even appreciation in value, in general Dubai flat rent, Dubai Apartments, and Villas in Dubai have depreciated in value over the last couple of months. A further dip in the industry is expected by March-April 2010, after which the sector is expected to recover by 2011. However, it’s anyone’s guess as to what will happen, and that is why the Government should take action to see that Dubai is back on track again- the sooner the better. There is too much at stake.