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February 2010

News Letter - 28th February 2010

Greetings from a muggy damp Dubai. After a spectacular storm last night the population tries to get back to work on the first day of the week dealing with flooded roads, mud etc. Here’s a summary of what’s been happening since our last newsletter.

Apparently, according to Jones Laing LaSalle, Dubai’s property sector is the most transparent in the ME although it needs to me more so. That being the case one can only wonder at the degree of transparency of property markets in other parts of the ME!!!

Moody’s has called on Dubai World to sell assets in order to restructure is $22Bn debt. Istithmar had sold some of its London properties and the ‘W’ hotel in New York by the end of 2009. They claim Istithmar is getting ready to sell Inchcape Shipping Services. DW has said it won’t pay back Dubai Financial Support Fund (DFSF) ahead of other creditors.

Construction has started on Nakheel’s “the world’ island project with Kleindienst Group beginning work on Germany. Arabtec (the largest constriction company in the UAE) has stopped work on Al Furjan (a development including 4000 homes) due to non payment by Nakheel. Their contract was for the first 1500 homes and cost $816M. They have completed 550 villas and Nakeel has sold 2000 units!!! Arabtec’s order book has dropped to $31Bn compared to $38Bn at the end of 2008.

Fitch Ratings yesterday downgraded two credit ratings related to Dubai Holdings Commercial Operations Group from B+ to BB. As you may recall in January DHCOG ditched Standard and Poor’s as its ratings company following a ratings cut. They then claimed S&P no longer understood their business!!! Regardless Fitch went on to say the downgrade reflects the firms “weak underlying business and financial risk”, but assumes ongoing government support.

Hotel prices are to stay flat for two years according to CB Richard Ellis. Room rates in Dubai fell by 26% to October last year – the largest fall in the ME.

The RTA and the Japanese led consortium of Obayashi, Mitsubishi Heavy Industries, Kajima and a Turkish firm have reached a settlement over the $3Bn plus disputed payment that was holding up completion of stations on the Dubai Metro.

The Dubai issued arrest warrant against ex Hydra Properties boss (and former Portsmouth FC owner) Sulaimen Al Fahim has been cancelled. He is being sued by an Azerbaijani investor for $2.3M and has been given a month to make full repayment of this amount plus a 9% delayed payment penalty otherwise a new warrant will be issued. On his return to the UAE Mr. Al Fahim denied that an arrest warrant was ever issued and claimed that he didn’t owe anyone any money.

The Abu Dhabi government and related companies could be looking to raise over $20Bn this year. The Department of Finance has created the Debt Management Office and they are working with JP Morgan, Citibank and Standard Chartered on issuing new bonds from the government and its companies. There are a substantial number of projects and due to “other commitments” the AD government may not have adequate resources to cover them. We expect the governments’ support for Dubai to increase this year. So far Dubai has raised $20Bn from the federal government. With its large petrochemical reserves AD has the choice of seeking external funding or using its own wealth.  Debt issuance is the policy of choice for AD. The cost of insuring $10,000 of AD government debt has risen to $147.23 compared with $102.51 for Qatar and $600.99 for Dubai.

Law firm DLA Piper is opening a new office in Turkey and has growth plans for Abu Dhabi, Qatar and Saudi Arabia after laying off staff in Dubai due to the slowdown in the property and finance sectors.

After making investors wait over a month longer than previous years the National Bonds Corporation has announced a profit rate of 3.54% for 2009 – approx half the rate for 2008.

Iran’s recently discovered Halgan gas field has roughly 2.4 trillion cubic feet of reserves and could yield up to 249 million barrels of condensate gas. This gas field was discovered along with the Soumar oilfield earlier this month and together are believed to have a total value of reserves at $85Bn.

Within the last week oil topped $80 a barrel in Asian trade. Meanwhile oil majors are seeing refining profits tumble as demand in developed countries reduces due to energy saving measures. Unfortunately their refining capacity is where demand is reducing while demand is robust in places like India and China. Saudi Arabia’s Aramco has announced that oil exploration this year will remain the same as last year but they will increase gas drilling efforts.

World trade contracted by 12% in 2009 its sharpest decline since 1945 according to the WTO. This serves to illustrate just how deep the recession really has been and continues to be.

The 15th annual Dubai Shipping Festival closed on February 28th and while we will have to wait a while for the official visitor and spending numbers, and the organisers are proclaiming it a success, the retailers involved seem to feel differently. Reaction varies according to sector and location but it does seem visitor numbers and sales are down despite the DSF focussing more on Asia (including India and China) and less on Europe.

To review the Dubai Financial Market this month it began at 1589.97, saw a high of 1676.2 just before the middles of the month, and closed at 1581.94 so its general direction has to be considered to still be ‘’southward”.