Dubai can rewrite success story: Western analyst

Dubai needs to focus on regaining its position as a global commercial and financial services hub following its debt restructuring deal and the emirate has the potential to succeed, a prominent Western analyst said on Thursday.

George Abed, Senior Counselor and Director for Africa and the Middle East at the Washington-based Institute of International Finance, said the debt deal reached with more than 99 per cent of the creditors last week would support Dubai’s economic outlook and urged the emirate to take some measures.

Another Western analyst said the debt agreement could help Dubai retain its core assets and even issue new debt if global economic conditions improve.

Commenting on the agreement to restructure the $24.9 billion (Dh91.4bn) debt, the International Monetary Fund (IMF) said it would take the deal into consideration when it releases its global economic outlook in October.

“The agreement with creditors certainly helps Dubai World's outlook but it does not remove all uncertainties. In order to fully assure markets, the Dubai government related entities (GREs) will need to improve disclosure, reinforce corporate governance structures, and provide a clearer and more credible debt resolution framework,” Abed told Emirates 24/7.

“Of course, the government of Dubai as well as the UAE authorities have already made progress on these issues but there is more work to do and this will take time. Over the long term, Dubai will need to go back to basics, focusing on its core comparative advantage in being a global and regional hub for trade, travel, tourism and related services. The infrastructure, the skilled management capabilities and the proven competence are all there for Dubai to write a more measured but also more enduring success story in the coming years."

Abed said the Dubai government can restore the health of its GREs but added this requires slimming down their balance sheets through asset sales.

“Market conditions globally have weakened in recent months and are likely to remain fragile, thus making this process more difficult and less remunerative.”

An analyst at the London-based Economist Intelligence Unit (EIU) described DW’s agreement as a “massive leap” in clearing its debt hurdle.

Ayesha Sabavala, an economist and Deputy Editor for the Middle East and North Africa at EIU, said she believes the agreement would not only prolong repayment of debt but will also offer creditors reduced interest payments.

“Dubai World now has at least five years to come up with part of the payment and if the global economic climate improves, the conglomerate will likely hold on to its core assets and look to issue new debt instead,” she said.

She said the agreement removes the uncertainty over payment but added that UAE banks could still have to book substantial losses on their books.

“The extent of these losses will determine whether banks resume lending. Furthermore, the private sector will be hesitant to invest in large scale projects without explicit government backing.”
Another expert from the Group said it was early to say whether EIU would revise its projections for Dubai on the grounds it had expected that agreement.

“We would not expect to make any big change to our outlook for Dubai now, as there will still be some financing constraints on new project activity,” said David Butter, Middle East Editor at EIU.

“That said, we recognize some of the positive indicators in Dubai of late, for example in tourism and in airport passenger throughput.”

In comments published by the UAE semi official daily Alittihad, a senior IMF official said DW’s success in finalizing the debt rescheduling deal would “restore confidence in Dubai’s economy and improve domestic liquidity.”

Masoud Ahmed, Director of the Middle East Department at the Washington-based IMF, said the landmark agreement would be “taken into account” in the IMF’s next report on the global economic outlook, to be released in October.
 

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