As my Mother (the indefatigable Mary- 90 years old on Monday) used to tell me, "It is better to remain silent and be thought a fool, than to open one's mouth and remove the doubt!" A saying attributed to many from the Bible, through Confucius to Lincoln and lots in between. And I suspect I would have been much better to heed the advice in the case of the latest news from Dubai but alas, I have probably said too much to the media already in response to many questions. Plus the fact that my Blog has received a significantly high number of hits in the last 24 hours, suggesting that either someone forgot to turn off their computer, or someone was looking for news. Ah well, I thought, I had better write down my current thoughts because that way I only have myself to blame if they get misinterpreted!
Starting at the top, was I surprised that Dubai World had asked for an extension of time to repay their debts? Well frankly, yes. If you have been following Dubai at all recently you will have noted the continuing positive statements and assurances coming from the Emirate. Traffic was getting back to pre-crisis levels, job security was becoming less of an issue, and the good restaurants were doing a lot of business. So people were generally more bullish. Bond prices moved up in anticipation of a full payout or successful refinancing for Nakheel in particular. I said as much, if asked, that I believed this would not be a problem.
So what happened? I have absolutely no idea - and other than a very few people at the very top in Dubai - neither has anyone else. So all the speculation amongst the financiers, the analysts and the media is just that - speculation. And thereby lies a major problem for the Emirate. Public relations for Dubai over a period of time now has been less than successful. I have suggested on more than one occasion that it could be improved, and I am sure I have not been alone in expressing my concerns. If you are open and clear in your communication, there is little room for misinterpretation. The converse is true. If you provide unexpected news - unexpected because it was only very recently that assurances were being given which raised expectations - and then close down for 10 days, speculation is going to run wild. Unfortunately. markets will open on Monday for business and unless something is done very quickly to limit the damage, then the markets will, as markets do, over-react.
And why will the markets react this way, other than because they are being clearly spooked by the uncertainties? Because the way in which the announcement was made left out a critical ingredient, which was - does the moratorium cover principal and interest (in which case if this the intention, lenders will have to make immediate and very substantial provisions by the year end), or does it really only cover principle?
Many Dubai World companies are generating revenues. Not as much, obviously, as they were prior to the financial crisis but enough to service their debt. If they had clearly announced an intention to keep interest current, the situation might be a little less fraught.
So, is Dubai really finished; is it going to fall over? My personal view, and this comes with all the usual health warnings of someone who is as much in the dark as anyone else, is that Dubai will ultimately come through this - somewhat chastened perhaps but much wiser. I take comfort from the fact that Abu Dhabi has, so far at least, said nothing to suggest that they will go back on their earlier statements of support. I believe this latest and unexpected change of strategy could be a result of someone saying - "... before we get any more support from the UAE coffers, we should see - on a commercial basis - what we can do to re-arrange our finances..." It happens in the commercial world and Dubai World is a commercial organisation. Finally, whilst I have the highest regard for the younger entrepreneurial Dubaians (if that is the correct term) who were being afforded opportunities for development far in advance of their counterparts elsewhere, and who did exceptionally well in a bullish environment, I am pleased to see some grey hairs taking controlling positions - creating perhaps some stability in rocky seas.
My worries for Dubai, in the short term, are that the world still thinks short term. Memories in many financial quarters seem to have already forgotten the parlous state of the financial markets last year. And although the Icelanders may be rejoicing that a commercial enterprise has run up almost as much debt as Iceland - there is at least a possible saviour in the wings. The other worry is that like the proverbial rabbit caught in the headlights, Dubai does not move swiftly enough to satisfy the very people who can help.
But it's just a view.
Your comments are spot on.
Deduct one mark for incorrect spelling of principal.
Posted by: anon | 30 November 2009 at 11:36