It Was All a Mirage: One of Dubai World's disastrous investments includes the $8.5 billion CityCenter project in Las Vegas, Nev., the biggest privately financed construction project in the United States. Dubai World is near bankruptcy. (Ethan Miller/Getty Images)
For most of this decade Dubai has been the Victoria Beckham of the Arab world--the biggest, glitziest, most heedless spender. It's been the sort of place that invests $7.6 billion subway system few of its 1.6 million people are likely to use, the sort of place that builds artificial islands in the shape of palm trees, the sort of place that builds the world's tallest skyscraper, the sort of place that sells designer seat-belts to encourage drivers to be safer in the very cars it wants them to trade in for a subway ride, and the sort of place where office buildings have been the Gulf's most copious crop of the decade.
Dubai hasn't limited its excesses to its corner of the United Arab Emirates. Through Dubai World, the Emirate's investment arm, it partnered with MGM Mirage and invested in such projects as Las Vegas' CityCenter, a 67-acre development that includes a 4,004-room hotel-casino, 2,400 high-rise residential condos, dining and entertainment venues and its own retail district. At $8.5 billion, it's the most expensive privately financed construction project in the United States.
Now the bad news.
The Dubai subway has been running since September, albeit to empty quarters. A quarter of Dubai's office space is vacant. Workers have taken salary cuts of up to 30%. The Emirati government is in debt to the tune of $80 billion to $120 billion. CityCenter? It's "worth about half of what it cost MGM Mirage and Dubai World to build the massive Strip development," the Las Vegas Review-Journal reported in October. lost half its value. MGM Mirage took a $1 billion write-down already, Dubai World ate a $348 million loss (so far).
"Investors have long expected (and will probably expect further) write-downs of the carrying value of its residential towers at CityCenter, especially after it reduced unit pricing by 30 percent or so," the paper quoted BMO Capital Markets analyst Jeffrey Logsdon as saying in a note to clients. "We do not expect investors to have a negative reaction to this step."
So much for hail-Mary optimism.
On Wednesday, Dubai World announced that it could no longer make payments on its debt for at least the next six months. The news sent European and Asian markets into a swoon on Thursday. American markets followed today, though at this writing it looks like the 2% drop of the Dow in early trading is now closer to 1.3%.
Worse news for Dubai: Standard & Poor's downgraded the credit rating of three of the emirate's principal investment entities to BBB-minus, just-above junk status, one more to BBB-plus, and a fifth, Dubai Multi Commodities Centre Authority and Thor Asset Purchase (Cayman) Ltd at BB, or two notches into junk. All of this will make Dubai's debt repayments that much steeper, especially on some $50 billion that those finance firms owe in the next three years.
And still the optimist-illusionists were at it today, trying to put a good face on bubble shards. Here's how Paul Schulte, head of multi-strategy research at Nomura in Hong Kong, commented in a note on Friday, according to The Times: "Dubai was a carbon copy of Thailand's disastrous foray as an 'international financial center' in the 1990s. Happily, the U.A.E. has oil. Thailand did not."
The UAE has oil, yes. That is, Abu Dhabi does (92 billion barrels worth of reserves). Dubai does not. It barely has 4 billion. Oil production in Dubai has been plummeting. It relies on Abu Dhabi to bankroll its spending (the way the United States rely on China, Japan and the Social Security Trust Fund).
The big question is whether Dubai's bankruptcy is the beginning of another round of falling economic dominoes. We'll leave that one to the tea-leaf readers who, a dirham a dozen from Wall Street to the Arab Street, like to call themselves analysts.
See Also:
- What Is Dubai?
- Burj Dubai, World's Tallest Skyscraper
- Dubai's Metro Subway System
- Interview With Dubai
- Sex on the Beach in Dubai: Voyeurism of Orientalism
- Dubai, Philadelphia of the Arab World
- Dubai's Phony, Cancer-Friendly Morals
- Sports and Anti-Semitism in Dubai
Comments
yes i am agree with u
they hav ruined themselves and now ruining others
bad camel eaters
I have an idea for Abu Dhabi.
Sell all the projects on your hand to Lee Kah seng(Hong kong richer).
Bangladeshi Farmer Sends “Aid” to Dubai Government
http://theeggplantpost.wordpress.com/2009/12/02/bangladeshi-farmer-sends-aid-to-dubai-government/
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This is what happens to a sinking ship part of a conglomerate of aristocrates dependant upon one royal families oil that’s probably running out, the last breath of a desperate group hoping to cash in on tourist dollars. The hype was big.