It has been some time since I put finger(s) to keyboard, and apologies for the absence. The month of January seems to have been spent juggling my work commitments so I can make more sense of them, thinking about hiring some poor unsuspecting victim to do research for me so that I can become more effective, and making visits to UK (right in the middle of the snow), Dubai, Tokyo and three cities in China. I love retirement!
At the end of December I said I would comment on Dubai and Korea in my next blogs - well, better late than never I guess so here is the first one.
I was in Dubai a couple of weeks ago. It was after the opening of Burj Khalifa. The place was quiet. The walk in through Arrivals to the Arrival Hall was as empty as I have seen it as, despite the early hour, previously there were usually more people around. Not this time. Outside, the roads were running more freely than I have known them for a while, making journeys from one part of town to the other a pleasure again. Meaning you can make appointments and stand a fair chance of getting there on time, without getting "cut up" on the inside by a boy racer wanting to prove.. I don't know, something! There is a degree of gravity about the place, suggesting that the enormity of the situation in which they have found themselves has touched many lives.
And while some outsiders continue to revel in the delights of schadenfreude, all that I have seen is not necessarily bad. I wonder sometimes, for example, what would be the fate of Dubai had the development continued unabated in an environment where the earnings that were destined to pay for it all had continued to be depressed. Would there have been enough money in Abu Dhabi in that case to provide assistance? So the brakes have been applied, and a new focus is being brought to bear on the situation.
Oil, of course, was never going to be the salvation of Dubai. Revenue from that source had been written out of budgets with effect from 2010, but income to replace those revenues was being generated from tourism, from logistics and, latterly - from the contribution made by such areas as the Financial Centre. (My interest in such being duly noted). Revenue was going to come from the investments that had been made by various companies related to, but not guaranteed by, the Government of Dubai. And you can understand that many banks and financiers were under the assumption, only implicit, that their lending was somehow "guaranteed". Now they know the truth of that mistake. But, to the case in point, many of the investments made in the face of a deepening financial crisis were not, in the short term anyway, going to be paying the sort of returns on which those earlier investments had been predicated. So it was to be expected that cash flows would be tightened, and difficulties experienced in repaying debt.
Fast forward, then, to the events of last November when announcements were made to the effect that Dubai World was seeking a moratorium on its debt repayment until May 2010. Period. In my Blog of 28 November "Dubai - A View" as I noted, I thought the timing of the announcement was not appropriate for an investment community that were major lenders to Dubai companies, particularly given the lack of other information provided. (I also said I was surprised at the news - I was. I thought the bad news was likely to come from another quarter rather than a company where I knew first hand there were bits doing well. Information is one thing, interpretation another and infallibility only for a very few!!). I remain concerned at the lack of information being provided to a community that I believe wants to help, but cannot do so in isolation. I also worry that whatever you may think of the media, they have a job to do too and if they are asked to comment they will do so, either from a position of strength and knowledge or from the standpoint of a mushroom. (Mushrooms thrive on being kept in the dark and fed fertiliser!).
Perhaps the lack of news is a good thing. Maybe it means that banks are closeted in meetings with Dubai World to seek means of reaching mutually acceptable agreements. Smaller banks will be playing "chicken" with the bigger lenders, threatening to walk out of the negotiations unless they get paid out, leaving the bigger banks to swallow hard and take on the small banks debts or risk losing even more than they have already set aside for losses. Been there, done that!
Did the financial world breathe a sigh of relief that Abu Dhabi turned up with some cash at the last minute in December? You bet, and therefore is everyone expecting that they will do so again in May, come what may? Well I can tell you that a number of people I have spoken to think this will be the case, but I am not so sure, although my Scottish background suggests that despite the differences Clans will usually stick together at the end.
I think that Dubai companies will be expected to hammer out the detail with their lenders to seek a satisfactory way forward that everyone can live with and then, and only then, if there is still a gap will Abu Dhabi consider whether they can provide more assistance.
But I would suggest that in spite of the difficulties, the devil that lies in the detail needs to be exorcised sooner, rather than later.
But who is playing the role of exorcist?
Posted by: thomas | 08 February 2010 at 12:06