Monday, November 30, 2009

Question of the day

If you are Abu Dhabi, how might you have hedged your exposure to Dubai? (And who is your counterparty exactly)?

From zerohedge which has other pointed questions.

The image Dubai does not want you to see

Which, of course only draws attention to it.

As described by the Wall Street Journal,
The Sunday London Times newspaper was removed by authorities from shelves in the United Arab Emirates on Sunday amid intensive reporting of Dubai's debt problems, an executive at the paper said.
A government official in Abu Dhabi, the capital of the U.A.E., said that the picture of Sheik Mohammed, which accompanied a story entitled: The sinking of Dubai's dream, was "offensive."
At a bankers conference in Dubai early this month, Dubai's ruler, Sheik Mohammed bin Rashid Al Maktoum, delivered a prepared address about Dubai's optimistic economic prospects in Arabic. Then he briefly switched to English to berate the media and other critics for fanning speculation of a rift with Abu Dhabi.

"So, to the people of you who nag over Dubai and Abu Dhabi, shut up," he said. The audience laughed and applauded.
Who's laughing now?

Jo Tatchell, author of A Diamond in the Desert, is a guest contributor in The Times today. She writes:
Abu Dhabi has been playing a long game. Quietly amassing vast oil riches (the true extent of which are unknown) it has been nursing a long-term objective: centralisation of the UAE under the leadership of the ruling Al Nahyan family, securing greater political power and influence abroad in the process.

The strategy is simple. Abu Dhabi will cherry-pick the successful big- name assets and transfer them to Abu Dhabi control. These deals have been under discussion for some months. It has already sought to secure majority stakes in the Burj skyscraper and the Emirates airline, symbolic jewels in Dubai Inc’s crown.
Though undeclared, the hope is that these events will force the leadership of Dubai to resign. In a modern playout of ancient tribal politics Abu Dhabi wants Dubai reined in and put on a short leash. They are looking for the Makhtoums to fall in line with Abu Dhabi’s new vision for a modern Islamic state.
More from today's Times:
The Government of Dubai said today that it will not stand behind its wholly-owned subsidiary Dubai World, prompting fears that the company’s creditors could lose billions of dollars.

Today's comment, from Abdulrahman al-Saleh, the director general of Dubai’s Department of Finance, effectively confirms that country does not have enough money to repay Dubai World’s $60 billion of liabilities. Deloitte, the accountancy firm, has been called in to restructure the giant business.
Many creditors had assumed that the structure of Islamic bonds implied there was state backing for this type of financing and Dubai’s failure to support the Nakheel debt could have damaging implications for the wider Islamic market.

Saturday, November 28, 2009

Can trust in Dubai be restored?

Over at An Emirati's Thoughts, Emirati blames lack of transparency for the creation of the Dubai debt problem, and argues that transparency is necessary for finding a the way out. If you think what we have here is merely a cash flow problem that might be true.

Or is the business simply not profitable? Is the Dubai debt crisis just a case of bad luck? Or did Dubai make decisions based on a false belief in its own business acumen? Were investors, knowing the lack of transparency, too gullible? Is this a matter of over expansion of what was at heart a good business plan?

Economics through cartoons

Explain the economics behind this New Yorker cartoon.

Question of the day

Who's being sacrificed?

Dubai made its debt payment rescheduling announcement on Thursday. Like many announcements of bad news it came at the start of a weekend. In the UAE the weekend is Friday and Saturday. But this isn't just any weekend. The announcement came on the cusp of the Feast of the Sacrifice, Eid al-Adha. (I leave it to you to conjecture whether that was intentional.) World markets seem to think Abu Dhabi will have something to say by Sunday. But I wonder.

Addendum. As the first commenter underscores, the government holiday extends through next Sunday, December 6th. Holidays are taken seriously here.

Deciphering Dubai's Default

What it brings to mind is a colleague who'd made a downpayment on a property in Dubai. The builder later reneged and returned the downpayment because he'd found other buyers willing to pay much more for something that hadn't been built. Who's crying now?

1. Tyler Cowen

2. Paul Krugman

3. BBC's Stephanomics

4. Simon Johnson

My conjecture is that Abu Dhabi is just standing by waiting for the fire sale. The debt holders are ready to sell out to Abu Dhabi at a heavy discount. To complete projects Dubai needs money, lots of it. There's no bankruptcy court de jure. But Sheik Khalifa will offer Sheik Mohammed an ironclad annuity in exchange for ownership and control of the assets and for defacto political control as well. It's all going according to plan.

Tuesday, November 24, 2009

Fifa attractions

Source: WSJ

As predicted

Bloomberg: Dubai Surrenders Autonomy as Crisis Bolsters Oil-Rich Abu Dhabi
Until last month, a billboard at one of Dubai’s busiest roundabouts featured one photo, of Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum. The new billboard says “Long live our Emirates union” and also shows United Arab Emirates President Sheikh Khalifa Bin Zayed al Nayhan.
Sheikh Mohammed in February turned to Abu Dhabi, holder of the world’s sixth-largest crude reserves, for a $10 billion bailout. The central bank, which has its headquarters in the country’s capital of Abu Dhabi, bought the entire bond issue.

Dubai’s ruler is seeking an extra injection of $10 billion by the end of the year, Sheikh Ahmed bin Saeed Al-Maktoum, chairman of the emirate’s Supreme Fiscal Committee, said Nov. 16. The bond would get “majority government” participation, Mohammed Ali Alabbar, chairman of Emaar Properties PJSC and a member of the Dubai Executive Council, said Oct. 9.
“The whole strategy of diversification was a consequence of oil running out and wanting to keep their independence,” said Eckart Woertz, an economist at the Gulf Research Center in Dubai. “Now this diversification model is in dire straits and Abu Dhabi is the one that can help Dubai out.”

Sunday, November 15, 2009

The Empty Quarter from the air

Feast your eyes on aerial photos taken by George Steinmetz from a gas-powered paraglider.

He writes:
I became captivated by Arabia's Empty Quarter as a young man when I read Wilfred Thesiger's Arabian Sands. The Empty Quarter is larger than France without a single permanent point of water or human habitation. It's both the world's largest sand sea and one of the hottest places on earth, and has only been traversed a handful of times. I didn't want to repeat Thesiger's epic journeys many decades later, but when I discovered motorized paragliding I found a way to visualize this remote landscape in a new way. I made three paragliding trips into the sands, first for GEO in Saudi Arabia, and then returned two years later to go from Riyadh to Oman and Yemen for National Geographic, and finally made a personal trip to the southern most reaches of the U.A.E. to complete my field work. What I found was one of the most beautiful and unseen wilderness on earth. On its fringes I encountered elements the oil wealth that has forever changed Arabia, but I also found Bedouins still clinging to traditions, and offering up a level of hospitality that was truly humbling. This body of work would simply not have been possible without their kindness.
There is also this multimedia view.

Saturday, November 14, 2009


The real story starts just after the one minute mark. Ordoz? Dubai?