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March 2010

News Letter - 27th March 2010

First of all I’d like to thanks those amongst our readership who responded to my request for feedback at the end of our last newsletter. We do appreciate comments and contributions of our readers and I’d like this newsletter to become a collaborative effort and an information exchange. Once again I restate that we will not identify our sources without their express permission.

There is gathering optimism that Dubai World will reach an amicable arrangement with its creditors. They indicated an amicable restructuring would be announced ‘very soon’ – whatever the latter means. This sort of statement appears almost daily – is this Dubai World’s strategy in order to try to present the largest possible ‘haircut’ for the least possible damage to its reputation? Whatever the amicable arrangements are it is most likely to result in the raising of future capital for Dubai being a greater challenge and loans being much more expensive – the greater the ‘haircut’ the greater the difficulties that Dubai will face in the future in obtaining credit. This latter thought seems to be completely missed from all statements in this city.  It was stated that Dubai World needs the banks and the contractors just as they need Dubai World – although one would have thought the banks and contractors do not need defaulting clients! Towards the end of the week it was reported that the Dubai government was committed to injecting $9.5 billion into Dubai World to help pay off $14.2 billion of debt. They added that Dubai World proposes to repay creditors in full over periods of five and eight years. Support comes (again!) from the Abu Dhabi government. All these proposals, if correct, are subject to the 97 creditor banks accepting the proposals. Nothing is clear and we would expect some ‘twists and turns’ before the whole situation becomes crystal clear – if it ever becomes crystal clear! In meantime JP Morgan reckons that Dubai Holdings Commercial Operations Group (DHCOG) will avoid restructuring due to a sufficiently strong balance sheet and cash flow profile.

Britain’s top banks  look like avoiding massive losses on the Dubai World debt pile in 2010 but they did see approx $1.5billion wiped off profits in 2009 which they blame on the Dubai World crisis.

It was recently announced that UAE nationals will be able to own industrial and commercial properties, granted by Dubai's government, with full freehold legal status and get title deeds registered through the Dubai Land Department. It would seem that until now they could not own the land.

A former Deyaar Development employee was find AED 115 million ( $31 million) and sentenced to three years jail for accepting a AED 11.75 million ($3.2 milliamp) bribe in relation to a sale of a property to Deyaar by two businessmen. This person facilitated the sale of land in Dubai Marina worth AED 300 million $81 million) to Deyaar for AED 415.8 million ($112.4 million) and pocketed AED 11.75 million as a commission – not bad for a days work! The gentlemen concerned worked for Deyaar Development!

It has been reported that the UAE will gain approximately 6,000 additional hotel rooms during 2010, despite the fact that revenue per available room in Dubai plummeted by over 30% in 2009 against 2008 and in Abu Dhabi dropped approximately 12%. These additional rooms would have been ‘’unstoppable’ though because the planning and construction would have started prior the present ‘melt down’. We must expect a slow down in room numbers from 2011 and for the foreseeable future.

It was announced that the use of alcohol in food preparation in restaurants in Dubai was to be banned. According to reports this was an old law that hadn’t been enforced but was to come into immediate effect and a fine of up to AED 27,000 for noncompliance. The ban was to come in with immediate effect although it was reported that the law is an old one that had never been enforced! We were just wondering what to make of this state of affairs (possibly in terms of a negative impact internationally and in particular with respect to tourism which Dubai needs now more than ever during this harsh recession) when the following day the rule was rescinded as a “miss-understanding”. This is not that unusual an occurrence in terms of legislation in Dubai but it doesn’t help to instil confidence in the level of perceived professionalism of the authorities here.

Aluminium smelters in Dubai, Bahrain and Oman produced a combined total of over 2 million tonnes of raw aluminium in 2009 and this amount is expected to rise substantially throughout the coming years as the GCC countries take advantage of their cheap energy sources and therefore exploit a price advantage over competitors in other parts of the world. DUBAL – the state owned Dubai Aluminium Company – announced an AED 1.05 billion profit for 2009.

In the aftermath of assassination of Hamas leader Mahmoud al Mabhouh in Dubai, the UK government has announced that British passports will no longer be renewed at the embassies in the UAE. Britain’s foreign office plans to move all passport printing operations to seven Regional Passport Processing Centres by the end of 2010. From August 1st all UAE applications will have to be sent to the Passport Processing Centre in Düsseldorf, according to the British Embassy’s website. The renewal fee will increase by nearly GBP 100/-.