29 November 2009

The Collapsing Dubai

Once, Dubai World has a motto saying: “The sun never sets on Dubai World”. The state-backed group was the mastermind of world’s famous 7-star hotel, incredible man-made Palm Island, and world’s tallest building – The Burj.

By utilizing the oil wealth, Dubai had diversified into property and tourism since 2001. Property prices had gone up several folds – in this desert. Foreign workers are several times more than their own population. It was doing very well until overspending sets fire on its huge debts.

With up to $80 billions of debts due end of 2009, Dubai is scratching its heads very hard now. This was all started a year ago when the global economic downturn ended the sizzling hot property boom. Dubai was empty pockets after their oil money was drained by collapsing real estate prices and over-ambitious development plans, which sparked panic selling across the world on fears of, prolong global recession.

HSBC and Standard Charted Bank were believes to be the biggest financier to Dubai World, with the rest of the debt financed by regional banks. Yet, can Dubai pay back now? Impossible – with its tiny population and workforce!

Luckily, its oil-rich neighbour – Abu Dhabi – is more than enough to fund a bailout and has incentive to do so. In exchange, Abu Dhabi would gain control of Dubai, whether economy or political. Not surprisingly, Abu Dhabi sovereign funds are searching for investments around the world, cited Citigroup as example, eagerly flush its muscle in Dubai. Of course, Abu Dhabi existing economy involvements in Dubai created a too-big-to-fail scenario here.

For us, please rest assured that developments there would not impact our recovery path, except confidence. The dipping of stock markets worldwide this few days was mainly driven by emotional. In fact, this is a very good excuse for investors to exit the markets, which deem profit-taking.

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