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Saturday 22 November 2008
Boom times just a mirage as fast-paced Dubai grinds to halt
The seaside emirate of Dubai shifted into crisis mode this week as its break-neck building boom stalled, its lending bonanza evaporated and the government pondered wider steps to rescue banks.
Boom times just a mirage as fast-paced Dubai grinds to halt
Reuters in Dubai 22 November 2008
The seaside emirate of Dubai shifted into crisis mode this week as its break-neck building boom stalled, its lending bonanza evaporated and the government pondered wider steps to rescue banks.
Dubai - self-styled bling capital of the Middle East, nightclub hotspot for the teetotalling Gulf and home to the world’s tallest building and biggest shopping centre - has gone pear-shaped.
“It’s gotten pretty ugly out there,” Nomura Investment Banking analysts said, describing Dubai’s property market as “a full-scale frenzy in which speculation went largely unchecked until it was very late”.
The result may be a new business model for the emirate, one based less on debt and speculation.
Dubai’s response is now being hammered out by a committee of business and government leaders charged with steering the emirate through the crisis and perhaps throwing its high-debt business model out the window.
Big developers have started firing staff and paring projects, banks such as Emirates NBD have blocked consumer credit to employees of companies at risk, and at least one major mortgage firm has stopped lending altogether.
“Lenders blinded by rising oil prices and borrowers spellbound by easy returns have helped build a mountain of private sector debt in parts of the region that has generated an illusion of excess and abundance,” Nomura said.
Now, investors fear that individuals and corporations alike will have trouble paying back Dubai’s non-bank foreign currency debt estimated at just under US$70 billion, according to estimates by Fitch Ratings.
Shares in the region have lost about US$1 trillion since the beginning of the year as investors fled.
The United Arab Emirates finance ministry last month said it would inject 70 billion dirhams (HK$147.7 billion) into the banking system, and sought to do more to keep interbank liquidity flowing.
Many had hoped that the six countries of the Gulf Co-operation Council would escape the crisis because of their massive current account surpluses from energy exports.
“Dubai is the most vulnerable, as it has little oil and has been booming on the oil surpluses from the [Gulf Co-operation Council], Iran and Russia,” Citibank said.
Dubai Inc - the name applied to the emirate because it is run more as a business than a state - now faces a major overhaul and has hired teams of consultants to advise on how it might reshape itself in an era of weaker credit, high competition, low speculation and narrower profit margins.
With barely any oil to call its own within the loose UAE confederation, Dubai made its bid for fame by housing banks, retail, media, shipping and logistics enterprises and by billing itself as a safe haven in a volatile region for investors.
After the crisis, banks and property firms are likely to merge, developers retrench, and speculation fall.
In addition, some suggest that the monetary regimes in the Gulf - all, except Kuwait, which peg their currencies to the dollar - may need to restructure as floating regimes instead, a move likely to spur decades-old goals of monetary union.
Few anticipate default given the widespread view that Dubai is too big to fail and the implicit support provided by its neighbour Abu Dhabi - home to the largest sovereign wealth fund in the world, Abu Dhabi Investment Authority. “We believe Dubai will pull through with some help,” Citibank said.
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Boom times just a mirage as fast-paced Dubai grinds to halt
Reuters in Dubai
22 November 2008
The seaside emirate of Dubai shifted into crisis mode this week as its break-neck building boom stalled, its lending bonanza evaporated and the government pondered wider steps to rescue banks.
Dubai - self-styled bling capital of the Middle East, nightclub hotspot for the teetotalling Gulf and home to the world’s tallest building and biggest shopping centre - has gone pear-shaped.
“It’s gotten pretty ugly out there,” Nomura Investment Banking analysts said, describing Dubai’s property market as “a full-scale frenzy in which speculation went largely unchecked until it was very late”.
The result may be a new business model for the emirate, one based less on debt and speculation.
Dubai’s response is now being hammered out by a committee of business and government leaders charged with steering the emirate through the crisis and perhaps throwing its high-debt business model out the window.
Big developers have started firing staff and paring projects, banks such as Emirates NBD have blocked consumer credit to employees of companies at risk, and at least one major mortgage firm has stopped lending altogether.
“Lenders blinded by rising oil prices and borrowers spellbound by easy returns have helped build a mountain of private sector debt in parts of the region that has generated an illusion of excess and abundance,” Nomura said.
Now, investors fear that individuals and corporations alike will have trouble paying back Dubai’s non-bank foreign currency debt estimated at just under US$70 billion, according to estimates by Fitch Ratings.
Shares in the region have lost about US$1 trillion since the beginning of the year as investors fled.
The United Arab Emirates finance ministry last month said it would inject 70 billion dirhams (HK$147.7 billion) into the banking system, and sought to do more to keep interbank liquidity flowing.
Many had hoped that the six countries of the Gulf Co-operation Council would escape the crisis because of their massive current account surpluses from energy exports.
“Dubai is the most vulnerable, as it has little oil and has been booming on the oil surpluses from the [Gulf Co-operation Council], Iran and Russia,” Citibank said.
Dubai Inc - the name applied to the emirate because it is run more as a business than a state - now faces a major overhaul and has hired teams of consultants to advise on how it might reshape itself in an era of weaker credit, high competition, low speculation and narrower profit margins.
With barely any oil to call its own within the loose UAE confederation, Dubai made its bid for fame by housing banks, retail, media, shipping and logistics enterprises and by billing itself as a safe haven in a volatile region for investors.
After the crisis, banks and property firms are likely to merge, developers retrench, and speculation fall.
In addition, some suggest that the monetary regimes in the Gulf - all, except Kuwait, which peg their currencies to the dollar - may need to restructure as floating regimes instead, a move likely to spur decades-old goals of monetary union.
Few anticipate default given the widespread view that Dubai is too big to fail and the implicit support provided by its neighbour Abu Dhabi - home to the largest sovereign wealth fund in the world, Abu Dhabi Investment Authority. “We believe Dubai will pull through with some help,” Citibank said.
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