Post by Rajiv Sekhri on Sept 6, 2009 21:23:21 GMT 4
Dubai recovery not seen before 2011
Aug 24, 2009
Dubai's "significant debt burden" will prevent the emirate from taking part in a region-wide economic recovery next year and the city-state will not see positive growth until 2011 at the earliest, according to UBS economist Reinhard Cluse.
"When the rest of the world will recover, Dubai will not share in that recovery," Cluse told Maktoob Business in a recent interview.
"Asset prices in some areas in Dubai have to drop further. We can hope that next year will be a year of stabilisation and consolidation as the major part of the adjustment process comes to an end. So in 2011 we can go back to positive territory."
Dubai's debt burden is estimated to be around $85 billion, EFG-Hermes said this week, sharply above previous estimates of around $60 billion given by the Egyptian bank in November 2008.
UBS and the International Monetary Fund estimate that Dubai's 2007 gross domestic product was $72.6 billion, accounting for a little over a third of the UAE's GDP.
About $60 billion of the debt is on the balance sheet of Dubai World, a part of the extended business empire of Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum that includes banks, hotels, airlines and property.
Dubai World real estate unit Nakheel, which is building the emirate’s man-made, palm-shaped islands, is at the centre of concerns over Dubai’s ability to repay debt. Nakheel has a $3.5 billion bond due in December.
Swiss-bank UBS recently revised upwards its oil price forecast to $58.4 a barrel for 2009 from $51 and $69 for 2010 from a previous $57. It expects the UAE to record zero growth this year and 3.5 percent in 2010.
Cluse said "there is little upside" for Dubai. Even though UBS oil price forecasts have risen "other factors have moved toward the downside" for Dubai.
"Four things stand out (for Dubai). They are the significant debt burden, exposure to leverage, huge real estate exposure and the absence of a fiscal buffer," he said.
Dubai borrowed billions during the boom years to finance its vision to become a leading tourism and financial hub.
Its penchant to have the world's tallest building, largest airport, biggest mall, first seven-star hotel, man-made islands continued unabated on cheap capital from abroad and cheap labour from the Subcontinent.
But the trouble came with the onset of the credit crunch, when money dried up but repayments on loans remained.
"Going forward corporates will probably continue to struggle," Cluse said.
"Real estate markets will struggle with overcapacity for quite some time. Leverage ratios are too high so the balance-sheet clean up in the corporate sector will continue to have to work its way through the system.
"All this will act like sand in the gearbox of Dubai and hold Dubai back."
