Tuesday, February 24, 2009

The Dubai bubble bursts....

During the weekend, I met a couple who were formerly my neighbor at the hawker center. The husband is a business consultant from Malaysia and the wife is Korean. The couple met while they were studying in Canada. For this cosmopolitan couple, the world is their oyster. The last time I met them was about 1 year ago to say farewell as they left for Dubai. The pay in Singapore was good but the pay in Dubai was great!


When I asked them what they were doing back in Singapore, they told me some stories about Dubai. The economy grounded to a halt suddenly, expatriates simply left - without jobs some of them left without paying their rents, left their cars (with outstanding loans) at the airport and flew home. Dubai is now full of unoccupied condos, 3000 abandoned cars at the airport and an economy in crisis. Its richer neighbor Abu Dhabi had to bail it out by buying its bonds as the govt faced a liquidity crisis.

It was not too long ago when the images of lavish buildings in Dubai were flashed on the TV and this city state was the envy of the world. Its success was somewhat of an illusion built on credit.

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Dubai's $10 billion bailout
United Arab Emirates steps in and buys half of the country's $20 billion long-term bond offering.
DUBAI, United Arab Emirates (CNN) --

The United Arab Emirates pledged $10 billion to prop up Dubai, one of its most ambitious members, Dubai's government said.
Dubai launched a $20 billion long-term bond program Sunday in an effort to cover loans that financed its aggressive development strategy.
The Central Bank of the UAE bought up the first tranche of the bond issue, $10 billion, Dubai said. The five-year bonds pay 4% per year.
"This is a clear step from the central government to back up Dubai," said Khald Masri, a partner in Rasmala Investment, a very active investment bank in the region. "The central government's step will help ease the tense situation in the local economy and markets."
Dubai admitted that it needed the Central Bank money to stay afloat as credit has dried up, though it couched the statement in financial jargon.
"This issuance will provide the Dubai Government with the necessary liquidity to substitute the liquidity that has dried up globally in the last 12 months and accordingly meet all upcoming financial obligations," it said. "This program will secure the necessary funding for Dubai to meet its financial obligations and continue its development program."
The bond is an unsecured fixed rate paper, Dubai said.
"The fixed rate at 4% per year is excellent," investment banker Masri said. "Dubai got the best deal in that, taking into account the conditions in the international markets."
But he warned there was "no way" Dubai could get as good a deal from international markets as it did from the UAE when it issues the second $10 billion in bonds.
The Dubai stock market rallied Monday, rising by 7.91%, with big bounces for stocks for semi-governmental companies, especially in the banking and real estate sectors.
Dubai, one of seven Gulf emirates that together make up the UAE, launched ambitious plans in the past decade to become a global hub for service industries such as information technology and finance as well as a tourist destination.
It lacks the oil reserves of other members such as Abu Dhabi, the capital of the UAE and its wealthiest member.
Dubai took out huge loans to finance its plans.
Moody's Investors Service warned in October that Dubai may need help from Abu Dhabi to pay for its debt. The emirate may have to refinance $15 billion this year in maturing loans and bonds, Moody's said.
Abu Dhabi, for its part, has invested around the world, buying a 75% stake in New York's iconic Chrysler Building last summer when oil prices were at their peak and helping to bail out the financial giant Citigroup with $7.5 billion at the end of 2007.
Abu Dhabi Investment Authority (ADIA) is the world's largest sovereign wealth fund, with an estimated $875 billion in assets, according to brokerage Morgan Stanley.
First Published: February 23, 2009: 12:47 PM ET

12 comments:

Anonymous said...

Airport carpark attendents are marking crosses on the windscreens of cars.

Everyday, parked cars are marked with an additional cross.

Once a car collects 5 crosses, they tow it away.

So, its bad over there.

There goes the 4th engine for the global economy

Anonymous said...

Dubai has many expatriates, much more than the local population. If Singapore with majority local, become like Dubai, where can our locals go(or escape to)?

So even if Singapore is as bad as Dubai, there will still be cars on the roads and people in condos and flats. So outwardly you can't tell. Better still, if elections are held, PAP will win solid again. Hence outwardly again, everything is very fine.

Anonymous said...

The ex-NKF CEO, KK Durai, went to Dubai to take up a job when he was released from prison, I my memory serves me right. Wonder if Durai is now back to Singapore?

Anonymous said...

Those who work many years in Dubai can save a lot more compared to working in Singapore. So if they have to come back and jobless, still not so bad compared to folks here.

Anonymous said...

build on wrong foundation fall lor

hopefully, their copy cat model may serve as early warning to us

Anonymous said...

An old time circut riding preacher found himself in need of money and decided to sell his horse and buggy. As he completed te deal he remarked to the blacksmith,"This is not an ordinary horse". Since he has been owned and driven by a man of the cloth all his life he does not respond to the commands of whoa or giddy-up. When you want this horse to stop you must say AMEN. When you want him to go you must say PRAISE THE LORD! Later that day the Blacksmith decided to take the horse for a ride to see how good he was. While trotting down the road the horse was startled by a snake and bolted. Wildly they headed across a field full speed toward a cliff.In a panic the poor Blacksmith was shouting WHOA>>>STOP when he remembered the preachers instructions and let out a loud AMEN! The horse stopped just at the edge of a thousand foot cliff, stones tumbled out into space. Releaved the Blacksmith wiped his brow and exclaimed "PRAISE THE LORD"

Anonymous said...

Seriously why would anyone post religious jokes in Lucky Tan's blog for the past few weeks non stop?

I think we all know the agenda is to ban this blog using the Seditious Act.

Cheers
Economist with a heart :)

Onlooker said...

Property Flipping is quite rampant there.
That's why Captital L sent TT Durex there using it's subsidiary compy to capitalized on that situation a few month back.
Dubai constructions prefer Indian , Nepalese, Pakistani and Bangladeshi Migrant workers but their Living conditions are horrendous with no regard for work safety and construction are often rushed to order because the buyer want to flip the properties ASAP.
What one must take note is the "FTs" there leave as soon as the economy gets really bad and jobs market dried up.(Dubai have no oil and feed on fellow UAE black gold money).
The same thing would happen here if the "FTs" can secure a better/equivalent job back home.
In fact,I knew a few IT specialists who left for home already.
I don't blame them though, our PR status and citizenship is dispensed like toilet PAPer.If they do not treasure it I'm not surprised.
Unlike in Dubai,You can only get PR status there after at least 6 year working there or buying landed properties ($$$million in US$$$) from the sheikhs there.
But it's not difficult to see what will happen(theoretically) when the jobs market dried up here.

Anonymous said...

they say, in every joke, there is a hidden message. if you dont get it, just laugh it off. most people do laugh it off in the real world but then, except for erm...."holy people" in very small and tight spaces or prisons

Anonymous said...

ever wonder how the marina skyline looks so similar to dubai's, except way tinier? talk about copycat hehehe

tortilla chips said...

Why am I not surprised? I've never thought much of Dubai, even a few years ago when they announced they're going to "compete" with us for flight & shipping lanes. Dubai's economy base is simply unsustainable, it's propped up by petrocash and expatriates/foreign labour from all over the world. In short, its labour force is mercenary at best.

If you look at the local population, its HDI and education level cannot even begin to compare with Singapore (much less the leading economies of Western Europe or Japan + the other East Asian Tigers). It was a backwater only 10 years ago, economic development depended almost solely on building, building, and MORE building.

Evidently, Dubai is nothing but another farce. Moving on...

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