15 December 2007

Dubai's Debt Cloud

DUBAI, United Arab Emirates -- Dubai is on a spending spree, and financial analysts are starting to wonder about the amount of debt the city-state is racking up.

Its oil production is dwindling, and its debt load is four times the average among other Persian Gulf states. Credit-rating companies are asking for more information to determine how sound the government really is.

"From published documents, it is difficult to get a picture of the complete financial situation," said Standard & Poor's analyst Farouk Soussa. "The transparency isn't good."

One of seven emirates making up the United Arab Emirates, Dubai, like other Middle East governments, has been on a deal-making binge. Companies owned or backed by the government have signed agreements or made plays for billions of dollars in assets this year, including stakes in American and European stock exchanges, a Las Vegas casino operator and, most recently, a chunk of Sony Corp. Part of Dubai's deal-making is financed by debt.

At the same time, other Dubai entities have launched expansion plans relying on public borrowing. Nakheel, a government-controlled company building a giant, palm-tree-shaped island development, placed $750 million in bonds this month to finance its plans. Government-owned Jebel Ali Free Zone recently listed 7.5 billion dirham ($2 billion) of bonds.

Demanding Dubai Data

Moody's Investors Service, Fitch Ratings and Standard & Poor's Ratings Services are handing out credit ratings to many of these government-backed companies, and they are starting to ask for more disclosure from the emirate, which they assume will bail out the companies if they get into a jam.

"The rapid economic development of Dubai is certainly being accompanied by increased levels of leverage from companies that are closely associated with the government," said Tristan Cooper, a Moody's analyst in Dubai. "Without a clearer picture of the overall financial position of the central government and the broader public sector," investors could become more cautious.

The situation highlights a broader issue. Many of the world's governments and the companies they control are notoriously opaque, especially in the Middle East. But big regional investors like Qatar, Kuwait and Abu Dhabi (also part of the U.A.E.) have big hydrocarbon reserves to back up their deals. Production can be relatively easy to estimate from public figures. Dubai's reserves have been shrinking for years.

Dubai also has taken a more-complex approach to investing overseas. Most other deal-making countries have used massive investment authorities to pursue their deals. The Abu Dhabi Investment Authority, for instance, bought a $7.5 billion stake in Citigroup Inc. last month. In contrast, Dubai's ruler, Sheikh Mohammed bin Rashid al-Maktoum, has entrusted a cadre of lieutenants to run his own and his government's business interests. They often compete with one another and hunt for deals independently, but they all ultimately answer to Sheik Mohammed.

The government association has helped a handful of Dubai corporate entities get high credit ratings. The assumption is that Sheikh Mohammed or his government will come to the rescue in a pinch. And if Dubai gets overextended, analysts expect the emirate's much-richer cousins in Abu Dhabi will lend a hand. Abu Dhabi is the capital of the U.A.E., and its ruler is the country's president. Sheikh Mohammed is prime minister.

Moody's recently gave one of its highest corporate ratings, A1, to government-controlled DIFC Investments LLC. DIFC owns a stake in Borse Dubai, the holding company that recently agreed to acquire Nordic exchange OMX AB for some $4.9 billion. The complex deal aims to eventually give Dubai a stake of nearly 20% in Nasdaq Stock Market Inc. In a ratings note, Moody's said the rating reflects "the credit support the Government of Dubai is likely to provide in a distress situation."





This year, S&P rated Dubai Holding Commercial Operations Group LLC single-A-plus, citing "strong implicit support from the Emirate of Dubai." Sheikh Mohammed owns the entity's parent, Dubai Holding. A Dubai Holding subsidiary recently bought the Sony stake.

Mystery Investments?

The trouble with these corporate ratings is that without more disclosure, it is difficult to evaluate the financial soundness of these entities and the government backing them. As its oil supplies dwindle, Dubai has diversified its economy into financial services, tourism and real-estate development, among other pursuits. Those revenue streams and their underlying assets are difficult to pin down without access to government books.

In an emailed response to questions, a Dubai government spokesman said the emirate's debt load is "very moderate" by international standards, and the debt raised by Dubai entities "has all been in their capacity as leading international players that are successfully expanding in a number of profitable markets." He said Dubai is in the process of obtaining a rating on its sovereign, or government, debt. Such a rating gauges a government's ability to pay back its borrowing, and it is used to price publicly sold debt.

S&P credit analysts estimate Dubai's debt, relative to gross domestic product, is about 42%. Compared with the U.S., where gross debt stands at more than 60% of GDP, according to the International Monetary Fund, that isn't bad. But in Abu Dhabi, debt is equal to just 2.9% of GDP.

Analysts think Dubai's assets, including real estate, aviation and tourism interests and taxes, far outweigh its debt, but they would like to know more.

Of course, credit-rating companies have another motivation: In most cases, they are paid to rate the creditworthiness of firms and governments, and the big three firms are eager for clients like the government of Dubai.-(WSJ)

http://online.wsj.com/article/SB119759841193228627.html

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Lebanon Time-Line

Introducing Lebanon

Coolly combining the ancient with the ultramodern, Lebanon is one of the most captivating countries in the Middle East. From the Phoenician findings of Tyre (Sour) and Roman Baalbek's tremendous temple to Beirut's BO18 and Bernard Khoury's modern movement, the span of Lebanon's history leaves many visitors spinning. Tripoli (Trablous) is considered to have the best souk in the country and is famous for its Mamluk architecture. It's well equipped with a taste of modernity as well; Jounieh, formerly a sleepy fishing village, is a town alive with nightclubs and glitz on summer weekends.

With all of the Middle East's best bits - warm and welcoming people, mind-blowing history and considerable culture, Lebanon is also the antithesis of many people's imaginings of the Middle East: mostly mountainous with skiing to boot, it's also laid-back, liberal and fun. While Beirut is fast becoming the region's party place, Lebanon is working hard to recapture its crown as the 'Paris of the Orient'.

The rejuvenation of the Beirut Central District is one of the largest, most ambitious urban redevelopment projects ever undertaken. Travellers will find the excitement surrounding this and other developments and designs palpable - and very infectious.

Finally, Lebanon's cuisine is considered the richest of the region. From hummus to hommard (lobster), you'll dine like a king. With legendary sights, hospitality, food and nightlife, what more could a traveller want?

Introducing Beirut

What Beirut is depends entirely on where you are. If you’re gazing at the beautifully reconstructed colonial relics and mosques of central Beirut’s Downtown, the city is a triumph of rejuvenation over disaster.

If you’re in the young, vibrant neighbourhoods of Gemmayzeh or Achrafiye, Beirut is about living for the moment: partying, eating and drinking as if there’s no tomorrow. If you’re standing in the shadow of buildings still peppered with bullet holes, or walking the Green Line with an elderly resident, it’s a city of bitter memories and a dark past. If you’re with Beirut’s Armenians, Beirut is about salvation; if you’re with its handful of Jews, it’s about hiding your true identity. Here you’ll find the freest gay scene in the Arab Middle East, yet homosexuality is still illegal. If you’re in one of Beirut’s southern refugee camps, Beirut is about sorrow and displacement; other southern districts are considered a base for paramilitary operations and south Beirut is home to infamous Hezbollah secretary general, Hassan Nasrallah. For some, it’s a city of fear; for others, freedom.

Throw in maniacal drivers, air pollution from old, smoking Mercedes taxis, world-class universities, bars to rival Soho and coffee thicker than mud, political demonstrations, and swimming pools awash with more silicone than Miami. Add people so friendly you’ll swear it can’t be true, a political situation existing on a knife-edge, internationally renowned museums and gallery openings that continue in the face of explosions, assassinations and power cuts, and you’ll find that you’ve never experienced a capital city quite so alive and kicking – despite its frequent volatility.