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April 2010

News Letter - 10th April 2010

The latest information on the Dubai World debt mountain indicates that a restructuring proposal is almost ready to be put to the 97 creditor banks. The Dubai government is to pump $9.5 billion into Dubai World, most of which ($8 billion) to go to Nakheel. The deal to creditor banks is that full loan payment will be made but over a five to eight year period. No mention is made of any interest payments during this extended period. This is a proposal only and still has to be accepted by creditor banks and it is unclear at present if these banks have yet been consulted on the proposal. As a result of the announcement of the debt proposal the Dubai Financial Market (DFM) started the week at its highest point since January at 1,880. This has started infusing what can only be described as unjustified and near ecstatic optimism with one “expert’’ forecasting that growth is unlikely to subside and another forecasting the debt plan will drive the market up ten to fifteen percent. We continue to believe that profit taking will be the order of the day and the market will continue its ‘roller coaster ride’ for some time to come.

In the meantime the Dubai government has reportedly removed the entire board of directors of Nakheel and replaced them with new people who are now faced with the mammoth task of restructuring the Company and restarting some of the projects that were put on ‘hold’ in early 2009. Emaar Properties – one of the other large property groups in Dubai facing ‘difficulties’ arranged a meeting with its investors over the stalled work on two of their apartment tower blocks but cancelled the meeting at the last minute giving the lame excuse that ‘all executives schedules were too full’. Not really the sort of thing to do to enhance investors’ confidence. From the looks of their attitude these companies need to learn a bit more about customer service! In the meantime Limitless – another property unit of Dubai World in some difficulties received a 90 day roll over of a loan of $1.2 billion which was due for repayment this week, while negotiations continue on new terms for the loan.

The number of business licences issued in Dubai in February 2010 witnessed a 34% increase over the same period in 2009. Does this mean that Dubai ‘has turned the corner’ in the downward plunge of business? Since we do not know how the drop in 2009 compares with the figures for the same period in 2008 (at the height of the boom) it is uncertain how encouraging this apparent improvement will be overall.

The suggestion has again been recently raised that the UAE financial markets should merge. The DFM is in the process of a planned take over of the Dubai Nasdaq. This would leave only the DFM and that of Abu Dhabi.  Despite the large increase in business in the UAE over the last ten years the market is still far too small and fractured to be utilizing three separate markets – more markets than many of the substantial trading nations have! After a surge of the DFM last week on the news that Dubai World had put together a restructuring plan to deal with its mountain of debt the market has continued its ‘peaking and troughing’’ on virtually alternate days as investors seek to retain any profit.

The owners of a Dubai operated ship that recently repelled a pirate attack off the Somali coast (resulting in the death of one of the attackers) voiced their opinion that ship owners must fight back and break the continuing reign of terror in the Gulf of Aden and on the Somali coast. They indicated several local owners are now employing security guards on their vessels along with dogs trained to attack any pirate boarding the vessels. The International Maritime Organisation (IMO) – a U.N. organisation – continues to advocate not allowing security guards on ships despite the fact that attacks and hijacking continue with eight vessels and 152 seamen at present being held by these terrorists (pirates). This problem will not diminish while the global community only takes half hearted actions against these pirates. At present the pirates have everything to gain and nothing to lose in continuing their attacks. However it is not surprising the IMO (i.e. the U.N) takes such a ‘soft’ approach to the problem: after all the same organisation sends unarmed forces into dangerous conflicts in the world as observers. They have done this for many years and continue to do such so we cannot expect them to solve the pirate problem in Somalia. Until the shipping community ‘hurt’ the pirates by increasing the risk to the pirates to unacceptable levels these attacks and attempted hijackings will continue. We have advocated such action in several of our recent Newsletters and it would appear more voices are being heard suggesting a similar response.

French shipping group CMA CGM are at present in talks with the Qatar Investment Authority which has offered $1 billion in loan guarantees to the heavily indebted French company. It is possible that Qatar is considering using its investment in the French company to form part of its maritime hub in the port of Doha.

The Arabian Gulf countries are set to experience an acute shortage of water, energy and food over the next ten years. The water and energy shortage has been common knowledge for many years with energy shortages being very obvious with major outages, especially in Sharjah but in the last few years also in Dubai. A combination of a forecast increase in population, lack of water conservation as well as increased temperatures is already causing surging water consumption (per head of population). Most of the production of good clean drinking water is from desalination and reverse osmosis – an expensive process – very little is being done to promote water conservation. Conservation is relatively cheap compared with any of the desalination processes and needs to be promoted vigorously, including changing the UAE’s population extravagant life-styles!