Media reports mix up Dubai World, government: official

ABU DHABI, Nov. 30, 2009 (Xinhua) --

Recent media reports had "mixed up" Dubai World and the Dubai government, Abdul Rahman al-Saleh, director general of the Dubai Finance Department, said Monday.

    Dubai World "is a company set up with commercial basis and its transactions with creditors and investors were based on that respect," al-Saleh was quoted as saying by the official news agency WAM.

    He said the group used to get financing based on its commercial status and feasibility of its projects.

    "The gross mistake of the media is that they deem the company as part of the government. It is baseless," al-Saleh said, stressing that the Dubai government has supported the group since its inception.

    The official noted that Dubai World has implemented huge projects in the emirate of strategic significance, but has been affected by the global financial crisis similar to what happened to many corporations worldwide.

    The group faced difficulties in the redemption of its financial obligations, and hence, the decision taken by the government to restructure the company was to help it overcome that situation, according to al-Saleh.

    He added that the debts and obligations were not guaranteed by the government.

    Although the government is owner, "the company has multi-activities and prone to risks," al-Saleh said.

    "So it was indicated that the government is not a guarantor. Therefore, the dealing of company with all parties was based on this conception," he added.

    Al-Saleh underscored that the creditors should bear part of responsibility as they offered loans as per feasibility of projects and not upon the guarantees offered by the government.

    As for the restructure decision, he reiterated that the decision was sound and favors all parties in long term and not short term as Dubai World has strategic projects.

    He emphasized that the reaction was disproportionate to the size of Dubai World loan problem and that the situation would be rectified, calling on media to learn from the experience.

    The restructure of companies is normal in many countries through intervention of governments or boards of companies to deal with difficulties of some companies when they occur, al-Saleh said.

    He cited the United Arab Emirates (UAE) Central Bank's intervention Sunday to assure the markets and banks, stressing the existence of good federal coordination in this respect.

    The government of Dubai, a member of the oil-rich federation UAE, announced last Wednesday that it would ask creditors of Dubai World, one of its largest and most important conglomerates, to agree to a debt moratorium of at least six months as a first step towards restructuring.

    The announcement, described by ratings agency Standard and Poor's as a default, provided the focus for world financial markets and media last Thursday, hitting bank stocks and the prices of oil, but lifting the dollar on a day when the U.S. and most Gulf markets were closed.

Dubai debt meltdown -- another financial crisis?

    BEIJING, Nov. 29, 2009 (Xinhua) --

Dubai, an oasis in the Persian Gulf, has woken up to a debt crisis of its state-owned investment flagship Dubai World, a firm known for its slogan -- "The Sun Never Sets on Dubai World."

    The state-owned conglomerate in the United Arab Emirates Wednesday asked for a delay in repaying some of the 60 billion U.S. dollars it owes to creditors, causing panic and concerns across the world.

    Has the sun set on Dubai World? Will the crisis hamper the world economic recovery and spill over to the global financial sector? Or will it trigger another economic meltdown?

    RISKS: SMALL OR BIG?

    Amid fears that Dubai World could delay its massive debt payments and shock waves around the world's already brittle stock markets, the world leaders played down the troubles and showed their confidence in global economy.

    Although Britain comes in forefront with many of its commercial banks exposed to the Gulf emirate's financial problems, its Prime Minister Gordon Brown was more ready to call it a setback, which he said was "not on the scale of previous problems we have dealt with."

    "The world financial system is stronger now and able to deal with the problems that arise," he added.

    French Prime Minister Francois Fillon said the Gulf had the resources to ensure the world would not sink into a second round of turmoil.

    Their words were echoed by Sheikh Ahmed Bin Saeed al Amktoum, chairman of Dubai's Supreme Fiscal Committee, who said that "the government is spearheading the restructuring of this commercial operation in the full knowledge of how the market would react."

    However, some analysts voiced their concerns over Dubai's stance to downplay its financial predicament, saying that a lack of details on the crisis would raise concern over the problem.

    Likewise, many heavyweight investment institutions also cast doubts on the current default by warning that the Dubai debt might be over 80 billion U.S. dollars. Some observers even dubbed this scenario "financial crisis 2."

    Following the Dubai World's announcement, Standard & Poor's downgraded its ratings of several Dubai government-related entities.

    A Saudi economist said "it is a very serious and severe problem that is likely to shake up the Gulf financial system as a whole."

    DUBAI VISION: GAINS OR LOSSES

    In "My Vision," a book written by Sheikh Mohammad bin Rashed al-Maktoum, the Dubai ruler depicted his dream that Dubai, always seeking for innovation, would become a world economic center.

    But the debt crisis would almost wreck his dream.

    With a rapid development drive, Dubai, a tiny emirate, has in recent years transformed itself into a regional financial and tourist center.

    Unlike its oil-rich neighbors, Dubai adopted a different path of development, where the skyrocketing buildings and the masses of foreign workers it employs serve as witnesses.

    Instead of naming it the beginning of a new financial turmoil, a U.S. consulting company said in its report the latest crisis was an overdue burst of assets bubbles.

    Nevertheless, many believed Dubai's growth mode was still recommendable as it had made a good use of its geological advantages and successfully spurred up its economy.

    Some held that such problems were inevitable in Dubai's economic transformation. Kit Juckes, chief economist of the London-based currency trading group ECU, called it a "one-off bubble" since "nowhere else has there been so much extravagant construction."

    MARKETS: CORRECTION OR EROSION

    As consequence of the debt woes, crude oil prices experienced the deepest slump on Friday since January. Meanwhile, property prices in Dubai almost downed by half. Wall Street retreated amid a global sell-off as investors fled risk assets.

    Some saw that the market was overheated this year and the debt crisis was just a trigger for market correction.

    Mohamed El-Erian, chief executive officer of the U.S. Pacific Investment Management Co., said Friday that the troubles in Dubai served as a catalyst for "overdue correction" in stocks and other risk investment market that has been depending on liquidity injection.

    "While many have acknowledged in the last few weeks the growing wedge between market valuations and economic and corporate realities, few have been willing to take their equity exposure down," El-Erian said.

    In tackling the global financial crisis, countries across the world were keeping low interest rates and substantial liquidity in their financial sectors. Nonetheless, property bubbles were simmering behind these seemingly well-performed markets.

    The view was supported by Templeton fund manager Mark Mobius, who predicted that the Dubai crisis might trigger a 20-percent stock contraction on emerging markets.

    As real estate market accounts for a large part of Dubai's economy, some observers warned that the crisis could bear large on its economic well-being.

    Richard Bove, a veteran banking analyst at the U.S. Rochdale Securities, said that Dubai would probably sell its good real estate at a low price and cause a chain reaction in the whole market.

    Figures form the London-based Deutsche Bank showed that house prices, both commercial and residential, have halved since August last year.

    Despite Dubai World's pledge to mitigate the risks for its investors, the losses in its real estate and stock market would make it hard to have the promise delivered.

    Analysts from the Bank of America cautioned that if the Dubai crisis spread to other emerging markets, the world economic recovery could see a major setback.

Editor: Deng Shasha