Dubai--Is It as Bad as They Say?

Posted by: Stanley Reed on April 09, 2009

For someone who hasn’t been in Dubai for more than a year, some things have changed. The traffic, while not non-existent, is much improved. Finding a taxi is no problem. But Dubai hasn’t disappeared. I went over to the Dubai International Financial Center, the wannabe Wall Street of the Middle East. Is it dead? Well the buzz seems a tad reduced, but there were still lots of people dressed in elegant dark suits eyeing their BlackBerrys.

The DIFC, which is somewhat Mussoliniesque though attractive, with outdoor verandas where you can sip a latte, has opened a kind of annex called Village Gate that feels like much more of a community. There are art galleries and other shops mixed in with the money management firms. All of this was just sand a few years ago, but outdoors in the alleyways between the stone clad buildings it seemed as if it had always been there. There were trees, and a tropical bird that I couldn’t see was making a wailing sound.

What happens to Dubai will largely depend on how the rest of the world economy fares. It is as much as anywhere a play on things global—trade, travel, finance. But some of the worst fears about Dubai’s finances seem to be easing. One reason is that the people around the ruler, Sheikh Mohammed bin Rashid al Maktoum, have finally acknowledged that they have a problem—though you wouldn’t know it by talking to some of them.

One accomplishment that eased the extreme jitters of year-end was the refinancing of Borse Dubai. Some banks had balked at recommitting to what had been a $4 billion facility used to finance Dubai's roughly 20% stake in NASDAQ OMX and its holding in the London Stock Exchange. After Dubai put in a bigger slug of equity, an HSBC-led facility has now been sealed. The $10 billion that the UAE Central Bank agreed to subscribe to a bond for Dubai was also a huge help. That indicated that Abu Dhabi, with its several hundred billion in oil dollars, was standing by its flashier neighbor.

Now comes the painful restructuring of Dubai Inc. Dubai Holding, the Sheikh's property and investment arm, is being streamlined with job losses. Dubai International Capital, an investment arm headed by Sameer Al-Ansari and Dubai Group, chaired by Soud Balaway, bought billions of dollars worth of overseas stakes in financial institutions and private equity investments in recent years at what has turned out to be the top of the market.

The two groups have been merged under one heading with care not to give banks an excuse to call their loans, and their assets are being carefully scrutinized with an eye to raising more cash. Also likely to go under the knife is the investment arm called Dubai World, which controls the successful Dubai Ports business, but ranged as widely as Las Vegas.

During the boom years "Sheik Mo," as he is known to Westerners, conveyed a "you can do anything you can dream up" message to his key managers. That sounded great two or three years ago when credit was cheap and Dubai looked unstoppable. Now much of the construction in the emirate has stopped and some studies predict a double digit loss of population this year, though some in the establishment dispute this.

One night I had dinner at the outdoor Arab style restaurant at the Ritz Carlton Hotel on the beach. The hotel is one of Dubai's charmers. I especially like the dark spiralling wood columns in the foyer. But looming over the restaurant was a row of hideous towers that would not have been far out of place in the Soviet Union. Many of their windows were dark. Driving around Dubai looking at the dozens of towers that have been built, some with great flare, one can't help but wonder who is going to live in them. "Russians," I was told.

Still, there are reasons for Dubai to continue to exist. It has a solid role as a regional port and trans-shipment hub. It also appeals to Saudis and Iranians who want to escape the suffocating setups of their own countries whether to do business or just have a good time.