Intro of Dubai

DUBAI GLOBAL FINANCIAL CRISIS
DUBAI INTRODUCTION
1- Located at the cross-roads of Asia,

Europe and Africa
2- Dubai is well positioned to attract

tourists
3- Sunshine, shopping, seaside, sports

and safety -five of the key ingredients
that have earned Dubai a growing
reputation as one of the world's most
attractive and rapidly developing
leisure destinations.
4-Trading and commercial hub of the

Middle East
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 Dubai was another fallout of the global

real estate bubble
 With global financial markets plunging
after Dubai World, the government
investment company burdened with $59
bn liabilities, requested for deferment of
debt to its creditors for six months, on
25th Nov 2009.
 Nakheel had a debt of $26bn $3.5 bn
Islamic bond due to be paid on 14th Dec
2009.
 The Dubai government’s total debt is
estimated at $80 bn.
 After 2003- Dubai economic model-
More debt & less equity.
 Advantage of
 Political and economic openness,
 Better infrastructure,
 Trade mark of regional and world
business hub.
 FDI invited:
 Invested in real estate-
Infrastructure,
 Tourism- airway
 Trade
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 Mismatch between demand and supply.

 Dubai has accrued debts of
approximately US$85-100 billion, or
around 200% of GDP.
 Government restrictions were low.
 Lax lending standards and low interest
rates.
 Dubai’s main development engine- Dubai
world and its real estate arm- Nakheel
 . Issued Nakheel bonds- investors ready
to invest as it was state owned
 . Today many bonds are due and cash
flow is not enough to pay them back.
 Restructuring effect-
 It has a reported US$60 billion in
liabilities, offset by a calculated
US$40 billion in assets
 There is a maturity mismatch- the
expected revenue is in the future
while liabilities, including to
contractors and suppliers, are
piling up today.
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RESOURCES PERCENTAGE OF UAE
4
SECTORAL COMPOSITION OF GDP OF DUBAI
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INTRODUCTION OF DUBAI
Dubai is one of the seven emirates of the United Arab Emirates (UAE). It is
located south of the Persian Gulf on the Arabian Peninsula. The Dubai
Municipality is sometimes called Dubai state to distinguish it from the emirate.
Written accounts document the existence of the city for at least 150 years prior to
the formation of the UAE. Legal, political, military and economic functions with
the other emirates within a federal framework, although each emirate has
jurisdiction over some functions such as civic law enforcement and provision and
upkeep of local facilities.
Dubai has been ruled by the Al Maktoum dynasty since 1833. Dubai's current
ruler, Mohammed bin Rashid Al Maktoum, is also the Prime Minister and Vice
President of the UAE.
The emirate's main revenues are from tourism, property and financial services.
Although Dubai's economy was originally built on the oil industry, revenues from
petroleum and natural gas currently contribute less than 6% (2006) of the emirate's
US$ 80 billion economy (2009). Property and construction contributed 22.6% to
the economy in 2005, before the current large-scale construction boom.
Dubai has attracted attention through its real estate projects and sports events. This
increased attention, coinciding with its emergence as a Global City and business
hub, has highlighted labour and human rights issues concerning its largely South
Asian workforce. Established in 2004, the Dubai International
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Finance Centre was intended as a landmark project to turn Dubai into a major
international hub for banks and finance to rivals New York, London and Hong
Kong.
Dubai's gross domestic product as of 2005 was US$37 billion. Although

Dubai's economy was built on the back of the oil industry, revenues from oil and
natural gas currently account for less than 6% of the emirate's revenues. It is
estimated that Dubai produces 240,000 barrels of oil a day and substantial
quantities of gas from offshore fields. The emirate's share in UAE gas revenues is
about 2%. Dubai's oil reserves have diminished significantly and are expected to be
exhausted in 20 years. Property and construction (22.6%), trade (16%), and
financial services (11%) are the largest contributors to Dubai's economy.
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OVERVIEW OF DUBAI’S FINANCIAL POSITION
The Dubai Financial Market (DFM) was established in March 2000 as a secondary
market for trading securities and bonds, both local and foreign. As of fourth quarter
2006, its trading volume stood at about 400 billion shares, worth US$ 95 billion in
total. The DFM had a market capitalization of about US$ 87 billion.
The government's decision to diversify from a trade-based, but oil-reliant,
economy to one that is service and tourism-oriented has made property more
valuable, resulting in the property appreciation from 2004–2006. A longer-term
assessment of Dubai's property market, however, showed depreciation; some
properties lost as much as 64% of their value from 2001 to November 2008. The
large scale real estate development projects have led to the construction of some of
the tallest skyscrapers and largest projects in the world such as the Emirates
Towers, the Burj Dubai, the Palm Islands and the world's second tallest and most
expensive hotel, the Burj Al Arab. Dubai's top re-exporting destinations include
Iran (US$ 790 million), India (US$ 204 million) and Saudi Arabia (US$ 194
million). The emirate's top import sources are Japan (US$ 1.5 billion), China (US$
1.4 billion) and the United States (US$ 1.4 billion).
Dubai's property market has experienced a major downturn in 2008/2009, as a
result of the slowing economic climate. Mohammed al-Abbar council of the sheik
told the international press in December 2008 that Emaar had credits of US$ 70
billions and the state of Dubai additional USD 10 billions while holding estimated
USD 350 billion in real estate assets. By early 2009, the situation had worsened
with the global economic crisis taking a heavy toll on property values, construction
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and employment. As of February 2009 Dubai's foreign debt was estimated at

apprx. USD 100 billion , leaving each of the emirate's 250,000 UAE nationals
responsible for 400,000 USD in foreign debt. However, it should be noted that
little of this is sovereign debt.
Dubai had issued to international investors, bonds worth $1.9trillion, which sent
the message that its economic position is unshakable! But now that foundation has
shaken!
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REASON FOR DUBAI CRISIS
As the United Arab Emirates celebrates

its 38-year Anniversary of Independence
from Britain, a dark cloud of uncertainty
casts a shadow of fear over the
festivities. The source of the fog: the
November 25, 2009 event known as "the
Dubai World Debacle."
In short: Dubai's largest government
owned conglomerate requested a six-month
"hold" on payments in order to restructure
its estimated $60-$80 billion of
liabilities.
In the words of one news source:
"Dubai, once the poster child of the
economic boom... is now the epitome of
recessionary bust.... The recent events
are a wake-up call"
that Dubai's property growth, its man-
made islands shaped as palm trees and
Arabic poems As the United Arab
Emirates.
The Dubai crisis began, when the emirate said Dubai World would not be able to
make on-time payments for some of its $59 billion in debt. The company invested
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in lavish real estate projects, including artificial islands in the shape of a palm tree
and a globe, and spent heavily to acquire stakes in glittering properties like
Barneys in New York and the MGM Mirage in Las Vegas.
After the Dubai government's shock
announcement it wants to freeze debt
repayments by its mighty Dubai World
conglomerate for at least six months.
Trading almost froze in financial market
meanwhile, Dubai's shock announcement
sent shock waves around the world as
investors feared a possible default by
Dubai and its state-owned businesses,
which together owe US $80 billion.
Stock and Oil Markets amid Dubai Crisis

Stock markets in Dubai and Abu Dhabi closed sharply lower on Monday, shedding
7.3 % and 8.3 % respectively amid a lack of buyers after Dubai World's shock
proposal to suspend debt payments.
The both countries are worried about debt woes. Dubai's benchmark DFM Index
closed at 1,940.36 points, down 152.80 points from its close on recent.
The financial market of the oil-rich Abu Dhabi also reacted negatively to the debt
woes of neighboring Dubai, dropping 8.31 per cent to 2,668.23 points in midday
deals, on Monday November 30th.
It’s to be noted that one key loans affected by Dubai World's planned debt is a
Nakheel issue of US$3.5 billion of Islamic bonds scheduled to mature on
December 14. Nasdaq Dubai website published that Dubai most active stock on the
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market listed by port operator DP World, part of Dubai World, on NasdaqDubai
exchange, dropped by 14.88 per cent.
Furthermore, the UAE central bank failed to reassure the investors in his Sunday’s
statement when it announced that it was providing additional liquidity to the UAE
banks.
The real estate big boom began in 1999 when property market was opened to
investors from outside the Gulf Co-operation Council countries.
Properties prices kept on increasing at breath necking pace. Speculative money
moved in and drove the price beyond normal people reach. Higher prices ensured
more supply of real estate and ‘Oasis’ started to become a mirage for the normal
people. The dream run of Dubai crashed when the Global Economy went tumbling
down due to sub prime crisis.
 In a journey to become world flashy city state owned companies

accumulated debt of over $80 billion. The debt was 126% of the GDP of
Dubai. Of this staggering amount of debt Dubai World the state owned
company had $60 billion of debt.
 World’s top bank had exposure in the short term paper of the Dubai World.
So any sort of default was sure to send tremor to the fragile financial market.
 The fall was because of the delaying the date of repayment of $3.5 billion
sukuk bond that is due on 14th December, 2009. The bond was issued by
Nakheel a branch of Dubai World. The announcement irritated the investor
and they triggered the panic button.
 The crisis in Dubai triggered sell off across the world
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Dubai, unlike other six emirates of UAE is not a country rich with oil resources.
This city state is purely a business city which wholly depending upon tourism and
other businesses. Dubai World, in a haste to attract world entrepreneurs started
spending more and more on building fine roads, star hotels etc. Foreign
institutional investors also invested much here, especially during the last four
years.
What happened was that the Dubai government requested the creditors of Dubai
World (one of three conglomerates that are backed by the emirate), to agree to a
'standstill' on repayments until May 30 2010.
The standstill also applies to the $4.05 billion sukuk, or Islamic bond, issued by
Nakheel, the state-owned builder famous for the spectacular Palm Jumeirah
scheme and other such mind boggling projects that involve large-scale land
reclamation. Nakheel's parent company is Dubai World. The truth is that Dubai is
being crushed under a mountain of debt. The emirate has chalked up debt in excess
of $80 billion by expanding in banking, real estate and transportation. Dubai World
with $60 billion liabilities has sought a sixmonth standstill on its debt repayment to
all its lenders. The emirate borrowed $80 billion in a four-year construction boom
that transformed Dubai into a glittering jewel in the middle of the Gulf region and
also into a tourism and financial hotspot. Dubai's sovereign credit default swap has
surged 1.11 per cent to 4.29 per cent, leading to global rating agency Standard &
Poor's placing the ratings of four Dubai-based banks on negative outlook due to
their exposure to Dubai World. The debt itself might not seem too high, but the
uncertainty surrounding the entire issue has spooked financier. Investor confidence
the world over has been shaken up badly, as many wonder if the world would slip
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into another recessionary phase, given that there are some other nations in a similar
situation as Dubai: Greece, Iceland, Hungary being just a few of them.
Many nations that are following Dubai's development pattern are inviting trouble,
said analysts. Economists fear that they might have been too hasty in predicting
that the global financial crisis had ended.
The Dubai shock was as severe as it was sudden. Just a few weeks ago (November
first week), Dubai's ruler Sheikh Mohammed bin Rashid al Maktoum, had assured
all that the emirate's financial condition was all right, saying that it would raise
more funds to meet its financial commitments and would be more cautious. As is
normally the case in autocratic regimes like Dubai, no one knew what the real
situation was till it was too late. Analysts feel that either the ruler was unaware of
the magnitude of the problem or his advisors asked him to keep it under the wraps.
INABILITY TO PAY DEBT:
Dubai government has announced just recently, for the time being , not in a
position to repay its outstanding debt of $7,40,000.At the same time, Government
owned mega finance institution-Dubai World also declared that it may not be able
to repay any loan for 6months.This 'Dubai World' is engaged in different business
enterprises like-transport, ship building, township building, etc. A sister-concern of
Dubai world a building construction company, named NAKHEEL is also telling
that it requires some more time to repay its debt installments.
Speculation has mounted that Dubai was struggling under a mountain of debt and
would have to start selling assets or get bailed out by Abu Dhabi. Property prices
in Dubai have plummeted by as much as 40pc in two months. Officially Dubai
continued to insist everything was fine while refusing to reveal any figures.
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Meanwhile Dubai’s stock market is down 60pc this year, hitting many of the listed
companies.
So, total debt: $80bn against total assets of $1.3trillion
• Dubai GDP Dh198bn (35.6bn pounds)

• Ratio of debt: GDP is 148% compared with 57% in USA, 40% in Britain,
• 99% Japan Debt per capita: $40,000 per head if split between Dubai’s
population of two million.
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Friday November 27, 2009 Dubai sends markets into turmoil
 Some analysts see the Dubai fiasco from a historical angle; to them, the
causes of Dubai turmoil were noticed the moment Sheikh Mohammad Al-
Maktoum, its ruler, took the decision to invest his, as also the Emirate's,
wealth in US real estate markets through the foreign arm of Emaar; the
second largest property developer in Dubai.
 The company ultimately went bankrupt, extending the US subprime crisis to
the Emirate. The Washington DC and Abu Dhabi connection has pressured
Dubai to join the "international community" in taking a tougher stance
against Iran, which is one of the main trade partners of the Emirate.
 The Dubai fiasco reveals that the impact of the global financial crisis is not
completely over, which started in September 2008 with the bankruptcy of
Lehman Brothers, affecting flow of funds to developing markets like Dubai.
Valuation of assets like real estate got hit. At the same time, rise in the
interest rates because of the liquidity crunch affected viability of many
projects.
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ANALYSIS
Dubai World, the flagship holding company of Dubai, with $100 billion in assets
and $59 billion in debt, sought a six-month standstill agreement from its creditors
on November 25, 2009. Bonds amounting to $4 billion and belonging to Nakheel –
the property unit of Dubai World - were maturing on December 14, 2009. The
standstill agreement means that Dubai World will negotiate with creditors to
extend maturities.
It was indeed a shocking development. Stock markets around the world convulsed
as investors scrambled to understand the implications of the restructuring of debt.
Only two hours before Dubai revealed that it was seeking a standstill arrangement
for Dubai World, it had completed a transaction of $5 billion fully subscribed by
Abu Dhabi through its two state-controlled banks. Dubai has shattered the
confidence and lost its credibility in the eyes of global bond investors. The
question now will be about the nature of the sovereign support provided to various
borrowers in the region. The cost of protecting Dubai’s paper against default has
quadrupled – putting the Emirates in the same league as Iceland.
What went wrong? Was the announcement sudden? Will Abu Dhabi bail Dubai
out? What is the nature and extent of Dubai’s debt burden? What are the future
prospects of Dubai? How can this crisis affect Asian economies in general and
Pakistan in particular? These are important questions and an attempt has been
made to answer them.
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Dubai witnessed an uninterrupted explosive growth over the last several years at
the back of easily available cheap credit. Such an impressive growth not only
created excess capacity but also bred over-confidence. The absence of oil wealth
encouraged Dubai to diversify its economy by developing trade, tourism, transport
and real estate. Also, a series of free zones dedicated to different sectors of the
economy succeeded in attracting world-class companies and as such Dubai had
positioned itself as the financial and economic hub of the Middle East. When the
going was good, Dubai never looked back and continued to over-leverage itself,
thus accumulating a debt of over $80 billion or 100 per cent of the GDP. In plain
language, Dubai was carried away by its own success.
Last year’s global economic meltdown halted the pace of economic activity in
Dubai. The non-oil sectors that Dubai developed over the years were hit hard by
the global economic crisis. The value of the assets within and outside the Emirates
dropped sharply and incomes from tourism, hotel and airline continued to decline,
thus creating cash flow problems. The rise of sunk investment eroded Dubai’s
debt-carrying capacity.
The chapter on Dubai’s financial crisis was already written some five months ago.
The Economist, in its July 11 issue this year, published an excellent article under
titled “Trouble in the United Arab Emirates” warning about the brewing financial
crisis in Dubai by the year end. What an accurate forecast it was. The Economist,
quoting Standard & Poor’s (S&P), stated that the risk to Dubai economy has
increased substantially and that the uncertainty regarding the government’s
willingness to provide support to Nakheel was rising as well.
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The fact that Dubai will be facing a serious debt crisis was known to the market as
well as to the authorities. It is in this perspective that in February 2009, Dubai
wanted to raise $20 billion in a phased manner to honor its debt obligations. In
February this year, the UAE Central Bank bought a $10 billion bond out of the
proposed $20 billion transaction. On November 25, two Abu Dhabi state-owned
banks bought another $5 billion bond, leaving $5 billion to be issued later.
Dubai’s debt payment obligations reached an unsustainable level. Some $13-17

billion is said to be due in 2010 with almost $5 billion due in the first quarter. The
S&P has estimated that up to $50 billion worth of debt will have to be repaid by
2012. Realizing the unsustainable debt payment obligations, Dubai took a decisive
action to address its debt problem without apparently taking Abu Dhabi into
confidence.
Dubai is wounded and its reputation is badly damaged. It will now be more
dependent on Abu Dhabi for a bail-out. It goes without saying that the economies
of Abu Dhabi and Dubai are too enmeshed to allow one part to fail. Abu Dhabi
will certainly bail Dubai out of the crisis. However, there would be no blank
cheque for Dubai. Abu Dhabi will not like profligacy of Dubai to continue on the
back of its financial resources but at the same time it will bail out Dubai on a case-
to-case basis to avoid a serious long-term negative impact. Dubai, for its part, will
not be able to make economic or political decisions that Abu Dhabi finds
disagreeable. The latter would also like to demand a stake in some of Dubai’s
healthy assets in exchange for financial support. Furthermore, Abu Dhabi would
push Dubai to adopt a more conservative development model.
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Dubai’s crisis can be contained and will not upset the world economic recovery.
Sufficient financial resources and willingness exist in this region to contain the
fire. Asian economies in general and Pakistan’s economy in particular are not
expected to experience a significant negative effect as the exposure of their banks
in UAE are very limited and should not be a source of concern. As far as workers’
remittances are concerned, its rate of increase is expected to moderate in the short-
to-medium term because Dubai’s economy is also expected to grow moderately.
It takes years to build the confidence of the global investors but it takes just one
moment to shatter them. This is what Dubai did last year. Much will now depend
on the way Dubai’s authorities unruffled foreign investors’ fears.
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EFFECTS OF DUBAI CRISIS

A storm broke out in last November, emanating from the part of the world that is
widely seen as a major beneficiary of the rise in oil prices. Yet Dubai’s story is not
about oil. Indeed it is precisely the absence of oil and natural gas (less than 6% of
GDP) that prompted this emirate go down the path of tourism, hospitality, and
commercial real estate development, that lies at the heart of the matter now.
The financial crisis in Dubai continues the Tower of Babel curse. Attempts to build
the tallest building in the world require such investor euphoria and access to capital
that they frequently mark a top of the cycle. Burj Dubai, which was topped earlier
this year did not just edge out the former giant Taipei 101, but leapt above it (at
818 meters vs. 509 and 162 floors vs. 101).
Twice Told Tale
It has been clear for some time that Dubai’s opulent construction of an adult play
ground in the Middle East was a bit over the top and that its projects were designed
for radically different economic conditions. There have been reports of largely
empty luxury hotels, unfinished projects, partially built buildings and more
difficult credit conditions.
Construction companies, suppliers and foreign workers have reported that the
commercial real estate bubble has popped. Earlier this year, Nakheel, the property
company owned by Dubai World, which is the chief protagonist, received financial
support.
Like the similar reasoning that the US Federal Deposit Insurance Corporation
(FDIC) often uses in announcing bank closures after the markets have closed on a
Friday(in november), Dubai World’s request for a six month standstill on the
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servicing of its $59 billion of debt, including a $3.5 billion sukuk (Sharia
compliant bond-like instrument) that was to mature in December. The usual lack of
transparency, coupled with the region religious holiday and the Thanks giving Day
holiday in the United States, made for extremely thin market conditions and
encouraged risk-minimization and defensive actions.
Matters were further complicated by the postponement of a Dubai World press
conference and a computer glitch at the UK’s London Stock Exchange, which
incidentally but unrelated is reportedly a fifth owned by the Dubai.
Many believe that as goes Dubai World so goes Dubai, and expect its larger and
richer neighbor, Abu Dhabi to exact political concessions in exchange for
providing support. Dubai World accounts for roughly three quarters of Dubai’s
debt and about half of Dubai’s $25 billion remittances.
There are seven emirates in all that make up the United Arab Emirates (UAE).
Dubai’s GDP of roughly $40 billion accounts for something on the magnitude of
2% of UAE’s GDP. Yet what ails Dubai appears to be affecting the UAE as whole.
Some reports indicate that nearly half of the $582 billion construction projects are
on hold or simply cancelled.
IMPLICATIONS
There are a number of channels by which the events in Dubai can have a material
impact on the global capital markets even for those who are not directly exposed.
However, we judge the immediate reaction excessive, while at the same time
recognizing that the panicked reaction confirms our suspicion that despite the rally
in risk assets since late March, market sentiment remains fragile and jittery.
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First, a review of data from the Bank for International Settlements suggests that
outside of the UK, foreign bank exposure to the UAE itself is rather diversified,
though as one might have suspected, they are concentrated in Europe. Of the
roughly $123 billion UAE foreign obligations, UK banks are responsible for about
$50 billion and Europe as a whole almost $90 billion. US banks account for about
$10.6 billion, while Japanese banks have just shy of $9 billion exposure.
Trying to drill down to the emirate level and company level are a bit more difficult
as the data is hard to find and what is available appears few years old at best.
Nevertheless, while a default by Dubai, should it come to that, would be the largest
sovereign default since Argentina in 2001, would do the beleaguered banks no
favors, it probably will not undermine capital ratios in any material sense.
A second potential impact is on the monetary policy of the major central banks.
Central banks in the developed countries for the most part, with the UK a notable
exception, are unwinding some of the extraordinary measures associated with the
crisis, though for the most part (Australia and Norway are the exceptions) stopping
shy of actually raising interest rates. The new albeit mild shock for their troubled
banks and, should the heightened volatility in the global capital markets be
sustained, would seem to encourage policy makers, in anything, to move slower
and more cautiously perhaps than before. We think this is of marginal significance
at the moment.
A third potential impact is on the UAE’s peg to the dollar. While the Saudi’s
stance toward the dollar peg has been unwavering, the UAE’s central banker has
been all over the board. In mid-November, Kuwait’s basket approach was seen
favorably as an alternative to the dollar-peg, but late in the month, desire to drop
the dollar appeared to have cooled off significantly. The dollar’s peg among the
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Gulf Cooperation Council, except for Kuwait, is an element of stability and may be
marginally less likely to be jettisoned now than before.
CHART OF INFLATION:
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BANKING SECTOR
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EFFECT ON EMPLOYEES
It took a recent trip to Dubai for me to get my first true, honest glimpse of the
current economic crisis that is so profoundly hitting every corner of the world. As I
roamed the grand streets of Dubai, they lay empty, rendering the city a mere ghost
town of what I had imagined it would be. As I chatted with locals, they gave me a
glimpse into a much different Dubai. They informed me that previously it had been
impossible to get a dinner reservation without at least two weeks’ notice. A wait
for a requested taxi being less than a few hours was also a thing of the past.
Horror stories of thousands getting laid off and having to flee the country because
they could no longer afford their mortgages escaped their lips as if they had been
waiting for an opportunity to get these eye-witnessed nightmares off their chest.
Unlike in the United States and the United Kingdom, if you default on your
mortgage or loans in Dubai, you are thrown in prison. This severe punishment has
caused many laid-off workers to flee the country in an effort to avoid jail time.
These escapees literally abandon everything they have acquired during there stay
in Dubai. With only two suitcases in hand, they then drive to the airport, where
they leave their keys and a note that says, “Return to Dealership” in their leased
cars.
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BURJ AL ARAB IN DUBAI
THE WORLD'S FIRST SEVEN STAR HOTEL
My eyes now wide open I asked one local Arab, “If we

are in a worldwide recession, then are the billionaires
of the world still staying in the Burj Al Arab, the
world’s first seven-star hotel?” He replied, “That hotel
has never nor will ever profit. The Burj Al Arab is
subsidized by the Dubai government as a United Arab
Emirates landmark as opposed to being for-profit
hotel.” For the uninitiated, the starting prices for the
Burj Al Arab start at $1,000 and range all the way up
to $25,000 per night.
Things are beginning to look up for the Dubaian population, however. On February
22, 2009, Dubai was given a bailout by oil-rich Abu Dhabi, the wealthiest of all the
countries in the United Arab Emirates (UAE). The Economist reported, “The
central bank for the United Arab Emirates (UAE) bought $10 billion-worth of
Dubai’s five-year bonds. The bail-out confirmed everyone’s assumption that Abu
Dhabi would not let the second-biggest member of the UAE fail.”
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IMPACT ON BANKING
.
 Those banks which provided finance to various projects are feeling pinch of
Dubai crises
 Understandably their shares have fallen since.
FALL IN REAL ESTATE PRICES
 Building dream projects like the Palm shaped islands, a new urban metro,
the world's largest tower, a waterfront to the size of Hong Kong, a leisure
park called 'Dubai land
LAYOFFS
 The already reeling construction industry is seeing a major freefall. Laborers
are asked to go home and whatever little construction projects were on the
anvil, are shelved.
DROP IN DEMAND OF GOLD
 Dubai does not produce Gold on its own it seeks exports from countries like
India and re-exports them to other countries.
IMMEDIATE DROP IN OIL PRICES
 There was slight drop in oil prices as oil contributes to 6 % in Dubai

economy
 This crisis is a setback pushing Dubai to rely more on oil revenue. Dubai has
to pump more oil out to finance its debt and as OPEC is not expected to
increase the production quotas, expecting oil prices to go even lower.
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DEPRECIATION IN DIRHAM
The valuation of AED (The local currency of Dubai) saw a drop. This means the
strengthening of the Dollar, by a bit.
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EFFECTS OF DUBAI CRISIS ON THE WORLD

Anxiety over Dubai’s economic health has shaken world markets after
Dubai World, the fulcrum of the emirate’s economy, announced that it would delay
repayment of some of its debt. The lack of information about Dubai’s flagship
holding company, which is owned by the government, triggered indiscriminate
selling of stocks linked to the region.
Dubai, which borrowed $80 billion to fuel a four-year construction boom, was
badly hit by the global recession, with home prices halving since the 2008 peak.
The Dubai World conglomerate is the emirate’s largest corporate entity, with its
businesses covering real estate, port and leisure sectors. The company has asked
for a “standstill” agreement to delay repayment by six months on most of its $59
billion of debt.
Markets in Asia fell sharply in the backdrop of the disclosure. In Japan, the
Nikkei 225 had lost 3.2 per cent, its biggest one day fall in nearly eight months. In
Seoul, the Kospi dropped by 4.7 per cent marking a four-month decline. Hong
Kong’s Hang Seng fell by 4.8 per cent.
The cascading effect of Dubai’s debt problems were felt worldwide, because the
emirate is the region’s key financial centre, and is well integrated with global
markets. Analysts say that any default in debt repayment by Dubai can set a
dangerous precedent, and the contagion could spread, threatening the fragile
recovery of the global economy from recession.
Oil prices have dropped sharply, raising concerns about economic confidence in
the world economy. In the United States, crude oil fell by 5% to $74.23 a barrel
and London Brent Crude oil dropped $1.47 to $75.42.
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However, some analysts are of the view that the emirate of Abu Dhabi, which is
rich in oil, and continues to remain financially strong, is expected to bail out Dubai
out of its current financial difficulties.
Fuelled by its oil revenues, Abu Dhabi, unlike Dubai continues to witness as real
estate boom, absorbing South Asian, and especially Indian labour in significant
numbers.
While Dubai is not big enough to set off financial repercussions outside the Middle
East, the main fear is that investors could flee risky markets all at once in search of
safer havens for their money. As in September 2008, when the failure of Lehman
Brothers heightened worries about all financial institutions, they might pull back,
regardless of the markets’ strength.
The entire markets around the world, expect maybe the Asian markets and the
Lebanese one, are watching closely what is happening in Dubai but those who are
really on edge are the three European Markets that were affected by the shock
while closing their market today, and they are Frankfurt down by 0.45, London
sliding by 0.53% and France shedding by 0.65%.
31
DUBAI CRISIS NOT TO AFFECT PAKISTAN BANKS

ISLAMABAD (APP) - Pakistan’s banking sector is very sound and has shown its
resilience during the global financial crisis.
“We have well regulated financial system and Dubai debt crisis should have hardly
no direct impact on our banking system”, renowned economists and Vice
Chancellor of Pakistan Institute of Development Economics (PIDE), Dr.Rashid
Amjad told APP here on Wednesday.
However, he said that the two economies are closely linked through trade and
investment but “we are hopeful that given improved physical and financial
infrastructures Pakistan banking system will be able to weather the current
economic downturn”. “There is no reason for any bad impact of Dubai crash on
Pakistani banks”, a senior banker also observed. He added that only a few
Pakistani banks have little exposure in Dubai.
He said that United Bank Limited and Habib Bank Limited have little exposures in
Dubai as UBL was involved in doing business there but the bank has already
announced that its business would not hurt with this crash. The UBL in a statement
has announced that its UAE balance sheet and operations were healthy and robust
and were no challenged by the current financial crisis in the Emirates.
The Banker further said that the HBL has also exposure in Dubai but is much less
than UBL ,which would be ignore if size of the bank is considered.
32
WORLD REACTION ABOUT DUBAI CRISIS
BANK OF AMERICA CORPORATION:
Dubai’s debt woes may worsen to become a “major sovereign default” that roils
developing nations and cuts off capital flows to emerging markets.
“One cannot rule out -- as a tail risk -- a case where this would escalate into a
major sovereign default problem, which would then resonate across global
emerging markets in the same way that Argentina did in the early 2000s or Russia
in the late 1990s,” Bank of America strategists Benoit Anne and Daniel
Tenengauzer wrote in a report.
A default would lead to a “sudden stop of capital flows into emerging markets”
and be a “major step back” in the recovery from the global financial crisis, they
wrote.
RICHARD MCGUIRE, A STRATEGIST AT ROYAL BANK OF CANADA

IN LONDON
"The crisis in Dubai has brought up speculation about how many more skeletons
might be left in the cupboard"
33
GRAHAM TURNER, OF CONSULTANCY GFC ECONOMICS
"It gives you a picture of the fact that credit problem persists, despite everything
that's been done"
Andrew Clare, professor of asset management at Cass Business School
"This may be the first sign that people are thinking you can't get back to the debt-
fuelled halcyon days of 2007.
"I think this is just part of a wider problem. I just don't understand the basis for the
market rally: equity prices had gone too far. Investors are underpricing all the risks
that are out there, and this is just one of them. Some of those risks are going to
come home to roost, and this is just the first.
"And next year they're going to have the shock of realising that interest rates can
go up as well as down; and you've also got places like the UK, where taxes are
going to have to go up and public spending will have to be cut – and the US, too,
has some difficult decisions to make."
GERARD LYONS, CHIEF ECONOMIST WITH STANDARD

CHARTERED
“The market reaction shows how vulnerable some economies are to the aftermath
of the debt binge. This highlights how fragile confidence is”
34
JEFF MORTIMER, CHIEF INVESTMENT OFFICER AT CHARLES
SCHWAB INVESTMENT MANAGEMENT
"Markets were getting a bit complacent,"

"This is a wake-up call" that the economic recovery is going to be choppy and
uneven, he added.
Mortimer said of Dubai's debt problems "I don't think it's big enough to be a game-
changer," adding that "It gets my attention. But does it push the trains off the tracks
and is everything lost? Certainly not."
ALAN GAYLE, SENIOR INVESTMENT STRATEGIST FOR

RIDGEWORTH INVESTMENTS
"The Dubai incident raises the intensity of the numbers"

Weak economic data on top of renewed signs credit markets haven't fully
recovered could be enough to send the market lower and set the tone for December
trading.
35
BENEFICIARIES OF DUBAI DEBT CRISIS
As investors flee debt in Dubai, neighboring Bahrain, Qatar and Saudi

Arabia is likely to pick up much of its Islamic banking business, though the
financial hub is expected to bounce back eventually. While banks and builders
from London to Singapore count their losses from Dubai's troubles, there are also
worries the crisis will hurt its status as a regional centre for sharia finance, which
itself had a hand in the emirate's meteoric rise.
Dubai got down investments as Islamic banking boomed on the back of record oil
prices, drawing throngs of specialist lawyers and bankers attracted by its ease of
doing business and more cosmopolitan lifestyle than its conservative rivals.
The emirate positioned itself as a Islamic finance centre with top lenders like
HSBC, Deutsche, Standard Chartered using it as a base, as it sought to become a
financial hub between Asia and Europe. Much of that money and talent could now
to flow to its immediate neighbors as Dubai slowly works through its mountain of
debt and its shaken financial community exhibits a newfound aversion to risk. Up
for grabs is a bigger share of an estimated $1 trillion Islamic financing industry,
which like conventional banking is back on a growth trajectory as the global credit
crisis ebbs.
Saudi Arabia, Bahrain and Qatar, which also have ambitions of becoming regional
financial centers, will catch up as they are well regulated and have developed at a
more measured pace, bankers told Reuters.
Countries outside the Middle East are less likely beneficiaries, market watchers
say.
36
Malaysia, for example, has the world's largest Islamic bond market and is known
for more business-friendly interpretations of what is allowed under sharia law than
many Gulf countries, opening the door for a far greater range of financial products.
Its ringgit currency, however, is tightly managed, restricting the ease of investment
flows. Many Gulf currencies, meanwhile, are changed to the U.S. dollar.
37
METHODS ADOPT TO REMOVE THE CRISIS
Dubai may sell QE2 to tackle debt crisis The high-profile

“trophy asset” of Dubai’s boom years may have to be
sold to pay off the emirate’s mounting debts.
Cruise Ship History: Dubai may sell former Cunard Line QE2 to tackle debt crisis – The high-
profile “trophy asset” of Dubai’s boom years may have to be sold to pay off the emirate’s
mounting debts. The QE2 competes with the RMS Titanic for media attention.
The QE2 arrives at Port Rashid in Dubai. The Gulf state may have to sell the high profile asset
acquired during the boom years.
Dubai World, the state-run company at the heart of a default crisis that has sent
shock waves through the global financial system, bought a string of prestige stakes
and properties as the city grew. The team of auditors brought in by the
government, led by one of Britain’s leading experts in restructuring troubled firms,
38
is to trawl through all the company assets with no options ruled out, a spokesman
confirmed on Friday.
The dream that will never happen Dubai goes broke and where will the most famous cruise liner
in the world end up?
The Daily Telegraph also understands that Abu Dhabi is giving close scrutiny to
‘non-core’ assets like the QE2 in the Dubai World portfolio.
Dubai’s neighbouring emirate has agreed to lend $5bn to the support fund
that is being used to bail out the city’s finances, but is reluctant to see any of
that money go to Dubai World until a clear exit from its debt problems has
been plotted.
39
Nakheel bought the QE2 for $100m in 2007, but by the time it arrived in Port
Rashid a year ago this week its future was already looking uncertain. Since
then, little has been done to put in place ambitious plans to saw off a funnel in
favour of a glass penthouse and refit its suites and ballrooms into a floating
hotel.
It is supposed to be heading off for South Africa so that visitors can look
round during the World Cup next year, at least bringing in some revenue.
QE2 is just one of a string of assets now held by Dubai World. Leaving aside
its port operations and P&O, which it bought in 2005, all of which fall under
its DP World subsidiary which is said to be exempt from restructuring, it has
stakes in everything from entertainment companies to London apartments.
“I’m sure all of the assets of Dubai World will be reviewed,” the spokesman
said. “The QE2 is one of them. It’s part of the restructuring process, though
it’s too early to say whether there’s any sale in mind.”
Nakheel has two hotel chains, one of which owns the Turnberry Hotel.
Istithmar World, Dubai World’s venture capital arm, has stakes in Barneys,
the New York department store, Cirque du Soleil, the South African
entrepreneur Sol Kerzner’s hotel chain, and Standard Chartered Bank.
The company has also bought into MGM Mirage, the Las Vegas gambling
operation – even though gambling is banned in Dubai – and Troon Golf.
London properties include Adelphi on the Strand and the Grand Buildings in
Trafalgar Square.
Dubai’s senior officials are emphasising that progress will be methodical
rather than dramatic, but confirmed that Aidan Birkett, the partner of
Deloitte’s appointed as chief restructuring officer, had assembled a team in
the city to start going through the books.
40
Sheikh Ahmed bin Saeed al-Maktoum, the head of the emirate’s finance
committee and uncle of its ruler, Sheikh Mohammed, said in a statement on
Thursday night that its intervention in Dubai World was “carefully planned”
and that more information would be revealed next week.
However, investors will not be reassured that the careful planning did not
include informing senior government figures in Abu Dhabi, who were caught
as much by surprise as everyone else by the statement revealing the debt crisis
on Wednesday night.
Officials remain insistent though that Abu Dhabi will stand by its neighbour,
both as an emirate and as the senior partner in the federal government of the
United Arab Emirates.
Sheikh Mohammed has previously insisted that Dubai World is a company
and not part of the government, which would not necessarily guarantee its
debts. Abu Dhabi is now expected to reassure the international markets that
default by Dubai World does not imply a wider default that would undermine
confidence in the city or the country as a whole.
41
ARAB EMIRATES AIM TO LIMIT DUBAI CRISIS IN

PLEDGE TO BANKS
Trying to prevent a run on its banks and stem financial turmoil that some fear
could spread globally, the United Arab Emirates helped calm markets Monday by
pledging to lend money to banks operating in Dubai. But the action comes amid
concerns about excessive borrowing around the world.
A cricket break at a Dubai construction site in 2007. Dubai World invested heavily
in real estate.
A man passed the construction site of Dubai’s Business Bay on Sunday.
42
The move by the group’s central bank was an attempt to head off the kind of crisis
of confidence that froze credit markets last year and brought the global economy to
the brink of failure, threatening everyone from hedge fund billionaires to retirees
who had their savings in supposedly safe investments.
Central bankers and government officials around the world were watching
Monday’s stock markets closely for signs that fears are spreading or are being
contained. Asian markets closed up about 3 percent while European markets were
down by less than 1 percent in late-day trading.
Last week, investors fled the stocks of banks with outstanding loans to the tiny
emirate and its investment arm, Dubai World. Now, analysts will be watching to
see whether investors desert other highly indebted companies.
While Dubai is not big enough to set off financial repercussions outside the Middle
East, the main fear is that investors could flee risky markets all at once in search of
safer havens for their money. As in September 2008, when the failure of Lehman
Brothers heightened worries about all financial institutions, they might pull back,
regardless of the markets’ strength.
Those fears were allayed only after the United States announced a huge bank
bailout and began guaranteeing a variety of borrowing that slowly helped credit
markets begin functioning again. That many of these measures remain in place
could help contain any problems from Dubai now.
43
But while the United Arab Emirates federation is following a similar strategy,
albeit on a smaller scale, analysts expressed concern that the promise of added
funds to support Dubai banks might not be enough to keep anxiety from jumping
to other countries and institutions.
Indeed, an analysis from Goldman Sachs on Sunday said that the failure of
federation authorities to provide a blanket guarantee for all of Dubai’s debt showed
that governments worldwide were less willing to bail out overextended companies
and their investors.
“This episode represents a timely reminder that emergency public funding support
should not be taken for granted,” wrote Francesco Garzarelli, an analyst based in
London for Goldman.
The extent to which the federation and its wealthiest member-state, Abu Dhabi,
which has vast oil reserves, appear to guarantee Dubai’s debts could affect how
investors view many other companies previously believed to have the implicit
backing of their governments.
A top Dubai finance official, Abdulrahman al-Saleh, director general of Dubai’s

Finance Department, made it clear on Monday however that Dubai World itself
was not guaranteed by the emirate’s government.
“There are plenty of people around in world capitals who are tired of bailouts,”
said Simon Johnson, a former chief economist at the International Monetary Fund.
As a result, banks that made big loans to some heavily indebted governments and
companies might start to incur more losses. The shares of HSBC and Standard
44
Chartered, which lent heavily to Dubai, have fallen sharply in the last week, and
Mr. Johnson said that the cost of insuring against defaults by big Irish banks has
surged since the Dubai announcement.
A fear of contagion from Dubai would further destabilize European banks that
were only starting to mend.
The Dubai crisis began last week, when the emirate said Dubai World would not
be able to make on-time payments for some of its $59 billion in debt. The company
invested in lavish real estate projects, including artificial islands in the shape of a
palm tree and a globe, and spent heavily to acquire stakes in glittering properties
like Barneys in New York and the MGM Mirage in Las Vegas.
Dubai was far from alone in taking on too much debt as companies and countries
around the world did the same. Investors have already been alarmed by problems
in countries in Eastern Europe, in Ireland and in Greece.
Dubai’s problems are also a reminder of the lasting effects of the global real estate
bubble, which remains a danger in the United States, where several big banks are
encumbered by souring commercial real estate loans.
There is a concern that governments have responded to the financial crisis by

taking on unsustainable levels of debt that they may no longer be able to finance.
Even in the United States, public debt is forecast to rise to around 80 percent, from
about 40 percent, of gross domestic product, the economist Nouriel Roubini said.
“Dubai could be the beginning of a series of sovereign debt issues or crises,” said
Mohamed A. El-Erian, chief executive of Pimco, the giant bond-trading firm.
45
“What Dubai is going to do is make people think more intensely about the lagging
implications of last year’s crisis. It’s going to be a wake-up call to the people who
thought that the financial crisis was just a flesh wound.”
Many analysts expect federation authorities to release further details as soon as

Monday on how they plan to restructure the debt of Dubai and Dubai World to
keep markets calm.
Analysts will be watching crucial indicators of stability or alarm. The most

apparent will be if money is pulled from other investments to the safe havens.
Analysts will be monitoring the amount of interest that investors demand to lend
money to emerging market countries. It has already risen sharply since the Dubai
crisis erupted on Wednesday.
A major worry, investors say, is that the global debt crisis in private debt could
metastasize into a debt crisis for governments that are running mounting deficits to
pay for bailouts and stimulus packages — especially in Eastern Europe but also in
Britain.
In fact, a warning sign has already started flashing: the cost of insuring debt issued
by Greece, a member of the euro bloc, is now as much as insuring Turkey’s debt,
an investment that was once considered much riskier.
One consequence of the global financial crisis is that Greece has been forced to
take on shorter-term external debt. Debt securities due within a year have risen to
$24 billion in the second quarter of 2009, from $14.5 billion at the end of 2007,
according to figures from international economists.
46
Many countries may face tests in the weeks and months to come as they try to roll
over their existing debts. These countries will not be able to raise money easily or
cheaply. This could put pressure on stronger members of the European Union to
bail out weaker members, or at least help them restructure their debts and nurse
them back to health.
So strung out was Latvia this year that the country barely recovered from a
speculative attack on its currency, the lat, though it is a member of the European
Union. As it teetered, economists fretted about a coming “lat bath,” like the Thai
“baht bath” devaluation that set off the 1997 Asian crisis.
The International Monetary Fund, World Bank and European Union stepped in to
prop up the weakest countries, however, and fears of true sovereign defaults in
Europe’s most vulnerable countries receded before last week’s turmoil. These
institutions’ guarantees, however, do not extend to state-backed companies.
Hungary, Bulgaria and the Baltic states of Latvia, Lithuania and Estonia carry
foreign debt that exceeds 100 percent of their gross domestic products, Ivan
Tchakarov, chief economist for Russia and the former Soviet states at Nomura
bank, said in a telephone interview from London.
But the problems, if any, are likely to be limited to Europe. The tremors would not
immediately spread to the United States, beyond the effects of the strengthening of
the dollar, and potentially a weakening of commodity prices as investors bet on a
slowdown in emerging markets.
However, in the long run, a global credit crisis set off by Dubai would make the
cost of financing the trillions of dollars in American debt much more expensive,
47
Mr. Roubini said. “Even the U.S. — over time — cannot run forever unsustainable
fiscal deficit,” he said. “The total financing needs of the U.S. will range in the $1.5
trillion to $1.7 trillion a year for the next decade,” he said. “That is a huge amount
of public debt to issue and or roll over.
48
DUBAI'S ECONOMIC REBOUND
Dubai’s biggest merger ever may be only way out of meltdown
Dubai’s Emaar Properties announced it is expecting a huge merger to be completed

within four months with three real-estate units of Dubai Holding, which is owned
by the ruler of the Dubai, Sheikh Mohamed bin Rashid Al Maktoum, also the vice
president of the United Arab Emirates. The merger will consolidate Dubai
Properties, Sama Dubai, and leisure developer Tatweer who are all prominent
players in a sector badly hit by the global financial crisis. Emaar, the largest listed
49
Arab developer, of which 31.2 percent is owned by Dubai’s government and Dubai
Holding hopes the merger get finalized by early 4th quarter of 2009.
Sheikh Mohamed’s Dubai Holding owns the world-famous Jumeirah group of
hotels lining the highest-premium resort real estate/coastal area of Jumeirah Beach.
By 2011, Jumeirah group (before the downturn) expected to operate or have under
construction some 60 hotels and resorts worldwide with 65-75 percent of the
growth markets in Asia. Dubai Holding subsidiaries also expected to open at least
two additional hotels in Dubai in Healthcare City and Business Bay in 2008.
However, things have markedly slowdown since the financial crisis.
Emaar looks forward to the consolidation that will require due diligence of the
entities, detailed valuation exercise, completion of legal documentation, and
agreement with regulatory authorities in respect of the structure and the process,
and shareholders approval. H.E. Mohamed Ali Alabar, the founding member and
chairman of Emaar Properties, also a member of the Dubai Executive Council, the
supreme body of the government of Dubai has the mandate to synergize all growth
initiatives in Dubai.
Before the meltdown, Emaar Properties was growing at a phenomenal rate world
over, with a plan for global expansion to 36 countries. This Dubai-based public
joint stock company set up in 1997 and one of the world’s largest real estate/
property development companies in the Middle East, was listed on the Dubai
Financial Market. It is part of the Dow Jones Arabia Titans Index. Emaar had
assets in excess of $65 billion in investments, net profit of $1.8 billion and land
bank of half a billion square meters worldwide. Emaar also partnered with Giorgio
Armani SpA to create a worldwide collection of Armani luxury hotels and resorts.
Armani inked the contract with Alabar in an agreement that included the opening
50
of ten hotels and four vacation resorts within seven years in prestigious locations
such as Dubai, Milan, London, New York, Paris, Shanghai and Tokyo. Since the
recession, bolts loosened up on this deal.
The credit crunch caught on with all pending developments. A few months after
the US and Europe started to feel the pinch, Emaar kept going. Alabar eyed the rest
of Asia and India, claiming they’ve managed to weather the storm because they
manage the assets of Emaar like a little Chinese shop... “We don’t like points. We
don’t like to pay a lot of dividends because we’re not new to the field,” he said
with confidence. Emaar kept dreaming and hoping big while dipping into the
world's tallest tower in Dubai - the Gulf's tourism and trade hub that was to
challenge any skyscraper shooting up to more than 1.6 miles.
But, as soon as Dubai started broadcasting it was recession-proof, the market

began showing cracks. Not before long, Dubai resort and real estate markets
proved no one was immune from the crash. Sooner than later, Dubai jumped in on
the bandwagon like most of the rest of the world.
Nakheel, one of the world’s biggest and busiest property developers famous for the
large colony of man-made islands in Dubai, showed signs it too was hurting. The
world-famous Palm Islands have had its growth stunted by the economic
meltdown. Nakheel’s portfolio including the Palm Trilogy, The Waterfront and
The World, each boasting iconic and radical designs (respectively, the palm tree
national sign, the striking peninsula and the cluster of 300 islands forming a world
map – built on reclaimed land) began unprecedented sales decline. Though tough
to do, Nakheel’s CEO admitted not making any sales in the last months and the
firm's first sukuk, worth around $3.6 billion would coming up for renewal in
51
November 2009 – is in trouble. Unfortunately, huge funds mishandled during
construction may have contributed to the end of construction. Earlier in April,
reports said Nakheel was at the center of a crackdown on alleged corruption in the
emirate of Dubai. Two people were arraigned on suspicion of bribery days before a
high-profile sales team led by its CEO, headed to the USA to lure investors to
Dubai’s $300 billion property boom.
Property prices in the seaside emirate with its iconic palm tree-shaped islands
continued its slump since last year when the global economic crisis and a drop in
oil prices ended an economic boom in the Gulf region.
The slowdown has led to project cancellations worth hundreds of billions of

dollars. Dubai’s Tatweer project called Bawadi, a destination by itself saw the
danger looming ahead. Tatweer, a company owned by Dubai Holding, was
developing ‘en-masse’ its own hotel clusters with a total of 60,000 rooms in three
clusters. Bawadi wanted its own 30,000 keys, to run the investments, own all
business plans and do all feasibilities. They have also signed up with Emaar
Properties that owns a piece of land with 5,000 rooms in Bawadi, said CEO Arif
Mubarak who said they were to be the destination managers for the overall project
which was to create the biggest Bawadi hub catering to 51 hotels on the emirate.
Yet, Bawadi, groomed to be Tatweer’s giant mammoth project, developing a quasi

Las Vegas strip and the so-called Boulevard with a heavily-landscaped shopping
street adapted for outdoor use throughout the year cracked under market pressure.
Construction posed a major challenge. With building costs going up and workers
laid-off in droves, the hotels were never delivered.
52
And so, the days of positive or wishful thinking are over as the bubble burst in
Dubai. Emaar Properties, Nakheel, Damac, Tameer and Omniyat had been forced
to trim their workforces. Dubailand developer Tatweer reviewed its recruitment
policy in light of the economic situation. Perhaps today, the only saving grace
could be a merger of the biggest developers still alive in the days of dead and
dying deals in City of Gold.
53
CURRENT SITUATION
The government of Dubai has taken over its flagship company, Dubai World. The
surprising move has caused ‘panic throughout the region, and translated into a
selloff in bank stocks in Europe and Asia.’ To top that, ‘the government also aims
to delay payments on $60 billion in debt, a request that caused the price of insuring
54
debt in emerging economies to soar.’ Dubai, the oasis of ostentatious wealth in the
Middle East, is in trouble.
The shock waves reached stock markets around the world. ‘Investors scrambled to
understand the implications of Dubai World’s restructuring and unexpected debt
standstill.’ Markets in Europe closed. However, Dubai officially asserted that its
move was a “sensible business decision.” According to Sheikh Ahmed bin Saeed
al-Maktoum, chairman of the Supreme Fiscal Committee, “While the government
understands the concerns of the market and the creditors, it had to intervene
because of the need to take decisive action to address its particular debt ¬burden.”
He added that ‘the government had acted in full knowledge of how markets would
react’ and said, “We want to ensure resources are deployed … to enhance the
businesses of Dubai World Group, build on the restructuring … and ensure long-
term commercial success.”
According to some investors, it was the ‘lack of information about the debt
standstill, announced on Wednesday’ that was the major reason that caused the
‘wider turmoil.
55
CONCLUSION
In spite of all criticism from around the world Dubai still has an hope to bounce
back from this issue. This kind situation is not a new one to Dubai. Earlier during
1991, Dubai faces same kind of problem but it came out that issue tragically. At
that time its sister emirate Abu Dhabi financed to recover from it.
Of course now the amount require to recover from this issue is huge when compare
to earlier. But there is being supported by Abu Dhabi with some limitation.
As of now Dubai may or may not survive in the future. Because day by day its
stock market value coming down due to this issue.
 Diversification is not just a buzzword
 Debt does matter ... Eventually
 Foreign investing can be risky
56
END STATEMENT
“Destroyed the confidence between borrowers and

lenders and it has also shaken the confidence about the
pace of a global economic recovery."
57
APPENDIX
THE DUBAI DEBT CRISIS
December 5th, 2009
The credit crunch in Dubai raises alarming questions about the potential effects on
the global Thoroughbred bloodstock business, as demonstrated by articles in major
newspapers in the past week. Sheikh Mohammed bin Rashid al-Maktoum, Prime
Minister and Vice President of the United Arab Emirates (UAE) and the Emir of
Dubai, is the leading Thoroughbred owner in the world and the driving force
behind the gamble on growth in Dubai that led to the current state of affairs.
Following are two analyses and a closing commentary.
Dubai Crisis
The likelihood is that the situation in Dubai is not the beginning of a new
worldwide debt crisis, but rather, is a lagging effect, or a repercussion from the
global financial debacle in the Fall of 2008 and early 2009. The size of the
aggregate Dubai debt has been estimated to be about $80 billion, but some experts
believe it to be closer to $120 billion.
Abu Dhabi, the location of the UAE’s federal government, has the immense wealth
from oil to support the UAE banking system so that it does not default. Even
though the powers that be in Abu Dhabi are reportedly “furious” with Sheikh
Mohammed and others in Dubai, they have pledged to back up all domestic banks
and subsidiaries of foreign banks operating in the UAE.
58
Dubai World, Dubai’s “flag bearer in global investments” (quote from the entity’s
website) is another matter. Dubai World’s debt, approximately $60 billion, is not
guaranteed by the emirate’s government and Abu Dhabi is showing no inclination
to come to the rescue. The debt must be paid from the cash flow from Dubai World
investments. These assets are described on the Dubai World website:
“As a holding company [Dubai World] operates a highly diversified spectrum of

industrial segments and plays a major role in the emirate’s rapid economic growth.
Its primary aim is to play the role of a growth engine that powers development
both locally and internationally. Dubai World’s investment spans four strategic
growth areas of 21st Century commerce namely, Transport & Logistics, Drydocks
& Maritime, Urban Development and Investment & Financial Services.”
Ironically, in light of the present dire straits of Dubai World, the website says:
“The company’s business strategy is driven by a combination of pragmatic
acquisitions and prudent investments, designed to deliver real, measurable results
to all its stakeholders. “
Dubai World’s debt burden will be ongoing, as it restructures the terms of the debt
and extends the repayment schedule. Whether the Dubai problems will extend to
other emerging nations is a monumental risk looming over the worldwide
economy.
Effects on the Bloodstock Industry
I was at a corporate board meeting last week and the topic came up of how much
the worth of a company is diminished as its reliance on a single customer
increases. Everyone agreed that, while the single customer’s business is essential,
59
the overall value of the company is less than it would be if the customer base were
widely diversified. The 80-20 rule of thumb says that, for most companies, 80% of
the revenues and profits derives from 20% of the customers. In some cases, 95% or
more come from a very small percentage of customers and this dependence
dramatically ramps up the risk for a company in such a vulnerable position.
Sheikh Mohammed bin Rashid al-Maktoum and his far-flung breeding and racing
empire (Darley and Godolphin) constitute a single-customer threat to bloodstock
businesses and racetracks worldwide. He has been the leading buyer at
Thoroughbred auctions for years and, in fact, is the most important purchaser in
modern history. Were he to sneeze, so to speak, the bloodstock industry would get
pneumonia.
John Ferguson, Sheikh Mohammed’s chief bloodstock advisor, commented on the

debt dilemma in Dubai by saying that the Sheikh’s racing and breeding operations
are separate from the imperiled business operations. This is no doubt technically
true, but still does not mean that the racing interests will be unaffected. In the first
place, one would assume that the Sheikh has a significant portion of his personal
fortune invested in Dubai World. Even if this is not true, there could be public and
investor pressure for him to show some “sharing of the pain” by cutting back on
lavish spending, including bloodstock expenditures at public auctions and
extraordinary purses at the Dubai World Cup competition. What’s more, the debt
crisis is likely to result in a lowered standard of living for his subjects, which
should be a governor on ostentatious consumption by the ruler. Finally, the federal
government of the UAE may stipulate restrictions in return for the bailout.
60
It is easy to counsel the bloodstock and racing industry to diversify and expand its
owner base so as to reduce its reliance on Sheikh Mohammed. That, of course, is
difficult to achieve. I once served on the board of a Nasdaq-listed company whose
biggest customer was Home Depot. It takes a lot of average companies to hedge
the risks of losing such a behemoth as Home Depot. Similarly, the Thoroughbred
Owners and Breeders Association would have to recruit a multitude of wealthy
new owners to compensate for a giant cutback in spending by Darley.
IMMENSE ENTREPRENEURIAL RISK-TAKING
Sheikh Mohammed is to be commended for endeavoring to diversify the economy

of Dubai in anticipation of the day when oil revenues ebb. In the long run, his
subjects would be better off by not being oil dependent. However, Dubai appears
to have attempted to grow too much too fast. As a result, since 2008, residential
real estate prices have fallen by 50% and 41% of commercial space is vacant.
Unfortunately, the Sheikh’s ambitious vision was implemented, with a mountain of
debt, at almost precisely the same that the world economy plunged. Consider the
expanse of the projects undertaken by Dubai World:
“Its portfolio comprises some of the world’s best known companies and a number
of outstanding projects. This includes DP World, one of the largest marine terminal
operators in the world; Drydocks World & Dubai Maritime City designed to turn
Dubai into a major ship-building and maritime hub; Economic Zones World which
operates several free zones around the world including Jafza and TechnoPark in
Dubai; Nakheel the property developer behind iconic projects such as The Palm
Islands and The World among others; Limitless the international real estate master
planner with current development projects in various parts of the world;
61
Leisurecorp a global sports and leisure investment group, reshaping the industry by
unlocking value across investment, development and brand opportunities; Dubai
World Africa which oversees the regional development and portfolio of
investments in the African continent.; and Istithmar World, the group’s investment
arm that has a global footprint in finance, capital, leisure, aviation and various
other business ventures.” (Source: Dubai World website.)
The Sheikh’s intent for his people was correct and his vision was bold. His timing
was bad, but then, no one sees the future. Perhaps Dubai’s debt problems will turn
out to be a detour to the future rather than a dead end. The bloodstock industry has
a lot riding on the outcome. Dubai World’s motto is “The Sun Never Sets on
Dubai World.” Let’s hope not for the sake of bloodstock and racing enterprises
worldwide.
62
GLOSSARY
A
B
Burdened- Loaded/ Troubled

Ethics- Morals/ Beliefs
C
Conglomerate- Corporation/ Firm

Conservative- Traditional/ Intentional
Concession- Allowance/ Give up
D
Dynasty- Family/ house

Decisive- Important/ Critical
Diversified- To change/ Alternative
Engine- Neck of land

Epitome- Essence/ Personification
Exposure- Contact/ Introduction
Fragile- easily broken/ Delicate

Financier- Banker/ Investor
Fall out- Argue/ Disagreement
Glittering- Impressing/ Sparking

Glitch- Fault/ Problem
Giant- Huge/ Massive
63
Hub- Heart/ Core

Halted- Freeze/ Store
Insurance- Cover/ Protection

J
Jurisdiction- Authority/ Control

Jettisoned- Real/ Original
Leapt- Emerge/ Bind
Municipality- City/ Town
Opulent- Wealthy/ Lavish
Plunging- Loaded/ Troubled

Plummeted- better/ Fair
Postponement- Delay/ Deferal
64
Restructure- Reform/ Recognize

Recessionary- Decline/ Collapse
Reclamation- Recovery/ Retrieval
Substantial- Considerable/ Extensive

Spectacular- Stunning/ Impressive
Sovereign- Ruler/ Monarch
Speculation- Conjecture/ Rumor
Unruffled- Unmoved/ Stood

Unwavering- Firm/ Solid
Wholly- Completely/ Totally

Woe- Sadness/ Misery
65
BIBLIO GRAPHY
66

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DUBAI GLOBAL FINANCIAL CRISIS

1- Located at the cross-roads of Asia,

2- Dubai is well positioned to attract

3- Sunshine, shopping, seaside, sports

4-Trading and commercial hub of the

 Dubai was another fallout of the global

 Mismatch between demand and supply.

RESOURCES PERCENTAGE OF UAE

SECTORAL COMPOSITION OF GDP OF DUBAI

Dubai's gross domestic product as of 2005 was US$37 billion. Although

OVERVIEW OF DUBAI’S FINANCIAL POSITION

and employment. As of February 2009 Dubai's foreign debt was estimated at

REASON FOR DUBAI CRISIS

As the United Arab Emirates celebrates

Stock and Oil Markets amid Dubai Crisis

 In a journey to become world flashy city state owned companies

INABILITY TO PAY DEBT:

So, total debt: $80bn against total assets of $1.3trillion

• Dubai GDP Dh198bn (35.6bn pounds)

Friday November 27, 2009 Dubai sends markets into turmoil

Dubai’s debt payment obligations reached an unsustainable level. Some $13-17

EFFECTS OF DUBAI CRISIS

BURJ AL ARAB IN DUBAI

THE WORLD'S FIRST SEVEN STAR HOTEL

My eyes now wide open I asked one local Arab, “If we

DROP IN DEMAND OF GOLD

IMMEDIATE DROP IN OIL PRICES

 There was slight drop in oil prices as oil contributes to 6 % in Dubai

EFFECTS OF DUBAI CRISIS ON THE WORLD

DUBAI CRISIS NOT TO AFFECT PAKISTAN BANKS

WORLD REACTION ABOUT DUBAI CRISIS

BANK OF AMERICA CORPORATION:

RICHARD MCGUIRE, A STRATEGIST AT ROYAL BANK OF CANADA

GERARD LYONS, CHIEF ECONOMIST WITH STANDARD

"Markets were getting a bit complacent,"

ALAN GAYLE, SENIOR INVESTMENT STRATEGIST FOR

"The Dubai incident raises the intensity of the numbers"

BENEFICIARIES OF DUBAI DEBT CRISIS

As investors flee debt in Dubai, neighboring Bahrain, Qatar and Saudi

METHODS ADOPT TO REMOVE THE CRISIS

Dubai may sell QE2 to tackle debt crisis The high-profile

ARAB EMIRATES AIM TO LIMIT DUBAI CRISIS IN

A man passed the construction site of Dubai’s Business Bay on Sunday.

A top Dubai finance official, Abdulrahman al-Saleh, director general of Dubai’s

There is a concern that governments have responded to the financial crisis by

Many analysts expect federation authorities to release further details as soon as

Analysts will be watching crucial indicators of stability or alarm. The most

DUBAI'S ECONOMIC REBOUND

Dubai’s biggest merger ever may be only way out of meltdown

Dubai’s Emaar Properties announced it is expecting a huge merger to be completed

But, as soon as Dubai started broadcasting it was recession-proof, the market

The slowdown has led to project cancellations worth hundreds of billions of

Yet, Bawadi, groomed to be Tatweer’s giant mammoth project, developing a quasi

 Diversification is not just a buzzword

 Debt does matter ... Eventually

 Foreign investing can be risky

“Destroyed the confidence between borrowers and

Following are two analyses and a closing commentary.

“As a holding company [Dubai World] operates a highly diversified spectrum of

Effects on the Bloodstock Industry

John Ferguson, Sheikh Mohammed’s chief bloodstock advisor, commented on the

IMMENSE ENTREPRENEURIAL RISK-TAKING

Sheikh Mohammed is to be commended for endeavoring to diversify the economy