The slump in Dubai seems to be gathering pace, despite last week’s bail out by the UAE central bank via a $US10 billion injection of capital.
Local developers are either slow in paying, or not paying by way of trying to re-open contract talks.
The huge Trump Tower, a $US650 million project being built by Leighton and other parties for Nakheel, the dominant Dubai property player, was one of the first projects halted.
Leighton said it wasn’t a concern, Nakheel tried to play it down, but it was just the first in a string of decisions that have exposed Dubai’s fragility, to the point where the UAE central bank bailed it out last week.
But for how long? Bailouts in this slump extend past the first payment and with property and leverage a heady mix, Dubai looks like is facing more.
Nakheel is a big shareholders in Sydney developer, Mirvac.
It is also mixed up in a Dubai corruption story that seems unresolved, with links to the Brisbane company, Sunland, in which James Packer has an interest.
Nakheel and Mirvac are bidders for the big Bangaroo property development of the NSW Government in Sydney.
Going on their current financial state, they have no chance, especially with Mirvac shares hitting a new all time low yesterday of 67.5 cents yesterday. They ended at 77 cents, up 3 cents on the day in a late rise.
Nakheel now holds 10.67% of Mirvac’s shares, having sold down some shares in recent months. It was as high as 14.84%. It didn’t participate in Mirvac’s capital raising late last year, which helped cut its stake.
Nakheel is run by former Sydney property player, Chris O’Donnell, who used to head up Envestra here.
Leighton shares fell 48 cents $18.10, still well above its 52 week low of $16.15.
Its CEO, Wal King has expressed confidence in recent weeks about the company’s exposure in the Middle East, which is through a 45% stake in the Al Habtoor-Leighton Group.
Media reports tell of rising cash flow strains, bad debts, slow payments, job losses and official talk of encouraging mergers to strengthen local companies.
"The UAE Government would favour mergers of real estate and financial institutions to create better synergies in the current economic situation, a top government official said.
"We are looking favourably to the merger of real estate and financial companies within the UAE as it would create better synergies," Sultan Bin Saeed Al Mansouri, UAE Minister of Economy, told delegates at a conference in Abu Dhabi on Monday.
"His comments come at a time when the country’s two biggest mortgage lenders – Amlak and Tamweel – are in the process of a merger, while Emirates Bank and National Bank of Dubai have already merged to create the region’s biggest lender.
"There is talk of more consolidation in the industry as the global economic slowdown has begun to bite into large UAE corporations."
"Some contractors and consultants have not been paid for up to six months, and large Dubai-affiliated developers owe billions of dollars, according to contractors, lawyers and executives.”
They say large government-controlled developers in the emirate, such as Nakheel and Emaar, are among those failing to pay. (Source, FT)
"According to economists at National Commercial Bank, Saudi Arabia’s largest lender, $250bn of projects have been cancelled or delayed in the seven-state United Arab Emirates – the majority in Dubai."
The FT said that neither of the two Dubai’s developers would confirm any delays in payment, saying that they would continue to honour contracts.
“Payments for contractors and consultants are based on a credit cycle and set deliverables agreed with them,” said an Emaar spokesman. “All payments that meet the criteria have been honoured and will continue to be cleared, in line with our ¬contractual agreements.”
"A Nakheel spokesman said that all contracts would be honoured but the -company was seeking to renegotiate some in light of falling material and -construction costs."
Nakheel is said to be the biggest individual debtor in the country; owing a reported $US7.3 billion. It’s part owned by the Dubai Government which owes an estimates $US10 billion. Emaar properties owes an estimated $US2.4 billion.
By way of contrast, Emirates airlines owes $US3.7 billion and is considered to be one of the better operating airlines in the current slowdown.
Defaults by house buyers and residential property investors in Dubai are rising. Many are local investors from the Gulf, but some are further afield, attracted by the absence of an income tax and the freewheeling nature of the city.
The FT quoted an analyst saying these defaults could cost as much as $US25 billion over the next two years.
The UAE move to inject $US10 billion last week by buying half of a $US20 billion five year bond issue will help Dubai meet immediate demand from the holders of $US80 billion of debt.
But up to $US15 billion is reportedly due on these loans this year and any rise in bad debts will further imperil banks, mortgage groups, developers and their funders.
