Dubai Rumors

With the stock markets bouncing around like ping pong balls and every body waiting with baited breath to see if Abu Dhabi steps in with a bailout (they are certain to), the rumor mill is working overtime. One rumor that seems to be coming true is that Abu Dhabi insisted the Burj Dubai sit empty for a year as a penalty for over bearing brashness. This was reported back in April this year and Burj Dubai sits empty still. This was apparently after Abu Dhabi was forced to buy $10 billion in Dubai bonds, so who knows what “penalties,’ will be applied this time if the bailout is a big as I suspect it is going to need to be.  But – rumors abound and here are a few juicy ones, mixed with a little, “The Dubai problem is a small issue that will not affect the rest of the world,” as though BNP Paribais or Societe Generale can afford to lose another E20 billion.

According to Benzinga, Dubai could be forced to sell US Hotel stake.

The under threat Dubai World borrowed billions of dollars to buy high cost and high profile commercial properties in the US in recent years. Now that Dubai world is in serious debt trouble, it may have to sell these at a loss. The Dubai based conglomerate said that it would need at least six months to pay creditors on the $60 billion that it owes.

The debt was racked up by Dubai World during its real estate bubble that the global recession pricked, to use a simile. Dubai World owns US assets in several US luxury hotels which is the sector worst hit by the rising unemployment and plunging real estate values. Dubai World has a unit called Istithmar that holds the Mandarin Oriental in NYC for about $380 million in 2007 and a 50% stake in Fontainebleau Miami Beach for $375 million last year.

The US commercial real estate market is in the middle of the strongest downturn in decades which has led to a surge in loan defaults. But if Dubai World plans to sell some of its US assets, it would be hard pressed to find suitable buyers which lead to fears of huge losses on these investments. benzinga

The New York Times (blog) thinks that Dubai Inc’s holdings may go up for auction.

Much of the billions of dollars that Dubai borrowed during the boom years went to help build grandiose trophy real estate projects at home like an indoor skiing arena, the world’s largest airport, artificial palm-shaped islands and the world’s tallest building. But the emirate’s state-owned companies also went on a spending spree abroad, acquiring properties and companies that could now wind up on the auction block — potentially at fire-sale prices — to pay off its creditors. NYT

The Wall Street Journal suggests Dubai Crisis May Trigger Expat Job Losses.

Dubai’s debt bombshell will further hit confidence in the emirate’s expatriate community and could lead to a wave of redundancies at government-owned companies forced to restructure. “It’s clear there will be job cuts but it’s too early to know the extent of it,” Raj Madha, an analyst at regional investment bank EFG-Hermes told Zawya Dow Jones. WSJ

This use of the term “bombshell,” is pretty entertaining. It would seem that like many of the government press release farms, this was a “surprise,” to the editors of the WSJ. I will bear that in mind next time I read some of their “advice.”

The Dubai government had been quick to point out that none of the Dubai World debts have been guaranteed by the government, whch is of course, not going to worry anyone. Especially as Zawya reports that office rents in Dubai have now stabilized along with a large number of upscale residential projects. In light of the upcoming sixty billion dollar, not-guaranteed-by-the-government default and probable loss of thousands of residents, this makes for entertaining reading.

Rent decline is taking an extended breather in Dubai, with commercial and residential rents largely unchanged in November, a survey by the Khaleej Times and property management company Asteco showed. Zawya.