More tales of imprisonment and Catch 22 in Dubai

Readers,

Another cautionary tale of the draconian laws in Dubai and the obscene powers available to the banks in the UAE to imprison expats, from the BBC online. [TWI - thx for the link!]

The Catch-22 aspects of the UAE's immature laws with regard to debt and the absence of a personal bankrupcy law are scary indeed. More on that to come soon.



Dragon's advice on the UAE remains, as before, "Best Avoided"

BBC News

Homeless in Dubai

18 July 2010 Last updated at 03:45 ET Help
Nicholas Warner is British and sleeping on the street in Dubai. He got into a dispute with his bank, Emirates NBD, initially over whether his credit card repayments had been made.

He went on holiday at Christmas and the bank says that by leaving the country without its permission while they were in a dispute, he got reclassified as a so-called "debt skipper" - one of the many expats who leave Dubai in a hurry with large debts, never to return.

When he arrived back at Dubai airport, he was arrested. His passport was seized by police on the authority of the bank.

Although he was released and tried to negotiate with the bank he got into further difficulties.

He had been working as a strategy adviser for an alternative medicine company, but his employer decided it was safer to let him go while he sorted everything out.

Emirates NBD is refusing to let his passport be released until the debts are paid. Nicholas has no way of paying them without a job. And he cannot get a job without being able to show he's in the country legally. For that, he needs his passport.

Read more:
Destitute in Dubai: One man's story

PS: The Dragon is still on leave, like everyone else. Expect delays and occasional champagne-induced poor typography...

Draconian debt laws in the UAE. A Tale of Warning - Part One.

The UAE, and Dubai in particular, still peddle a life style vision of hedonistic pleasure to foreign expats (when not busy arresting and imprisoning them for saucy things like kissing and texting).

Middle talented service sector Brits, for example, seemed to be able to come over and live the lifestyle: posh new flat, new car, no taxes, and loads of relatively cheap restaurants, bars and nightclubs.

Bright Lights. Bright Opportunities!! From http://makkah.files.wordpress.com


They work in publishing, marketing, sales, account management, promotions, advertising, real estate.... Yeah, all those areas of employment heavily hit by Dubai's meltdown.

The problem is a lot of them believed the hype. They found themselves spending all that money on rents, loans to pay the rent in advance as demanded, car loans, going out. You know.

Then they got into the credit cards and personal loans too. Maybe even bought a place off plan. Ooops.

The UAE response to debt: Stop, Go to Jail. Go directly to jail. Do not pass go. Do not collect $200.


When such people get laid off, a whole new lifestyle kicks in. The UAE don't have a personal bankruptcy law, you see. And if you can't get another job to service your debts, the banks you owe money to can (and do) block your right to leave the country. If you can't pay your debts you get thrown in jail, for quite some time.

See the story of the guy who escaped by boat to India, and the facts about debt in Dubai

"Welcome to Debt City". By Tom Huntley
...
Ford also left behind an anguished “open letter” to friends and creditors that neatly encapsulates the predicament of many expats in Dubai who took out loans during the flush times and now find themselves out of work and unable to keep up with the payments on their seaside villas and luxury cars.

“I am not running away from debt, I am purely protecting those dearest to me and getting out of a country which, due to the lack of structured bankruptcy laws and a banking system which has zero flexibility on loan repayments, drives people to make horrible decisions,” he wrote in an open letter to local media.

He promised to repay all of his creditors.

Dubai authorities won’t say precisely how many people have been jailed for their debts, but local news accounts put the number at about 1,200 — more than 40 percent of the total prison population.

Even trickier to gauge is how many others took Ford’s route and simply fled. Judging by the number of apparently abandoned BMW’s and Mercedes gathering dust on city streets and the ensuing chatter on expats’ discussion boards, the number is not insignificant.

This situation has created a whole subclass of expats in the UAE who are in the hole (only a little bit, say $15k), unemployed, and therefore desperate. Hey, OK, so the banks lent them money. But 2 years in prison? How does that help pay their debt anyhow?

UAE Ministry of Tourism Photo: Everyone agreed the Ministry's new expat marketing campaign - though true - wasn't going to work.


So here's the sort of thing that's going on, and worryingly, Oman and our expat Governments' Representatives seems to be assisting the UAE to continue to imprison minor debtors.

Here's a cautionary tale folks. It's a true story. Some names have been changed.

PART ONE: The Fall From Grace

Dragon,
...
Roughly 5 months ago, NBD (National Bank of Dubai) put a case against me for missing 2 payments on a loan, this was due to loosing my job, as so many other people when the credit crisis hit. I was working in a construction related job.

I never once broke contact with the bank and as far as I am aware I would only be in serious default for missing 3 payments. I found another position and continued to pay, even paying a little more so I would eat away at the arrears and showing a determination to resolve my problem.

When NBD joined with Emirates Bank that they applied the case [law], this meaning a travel ban. They informed me of this situation by text message, not by letter or call..the arrears totalled 9000 dirhams which I paid immediately, therefore having a normal running loan account.

They insisted I have my salary paid into NBD but this was a problem due to commitments to Citi Bank ...

As time went on the [new] company I was with had difficulties, and a number of us where let go. But they also requested the residence visa back. This would have meant I could not go to the border to get a tourist visa due to the [travel ban], therefore I would eventually over stay, making it impossible to get another job with residency as all over stayers must be cleared and therefore I would be arrested.

Also as I must be a residency holder to have the loan in the first place, another reason I would not be able to clear the [travel ban]

So no matter what, he's screwed and will be arrested and put in jail for a debt - in this case - he was up to date with repaying!! What can our poor UAE expat do? What would you do?

These UAE laws are monstrous and barbaric. People guilty of nothing more than doing what was expected and encouraged by the Dubai authorities are being sent to prison in droves. With NO intervention by their embassies.

Why? In the west this would NOT be a cause for prison, but a negotiated settlement with creditors. Just like other bankrupt people or corporations (like Dubai World & Nakheel perhaps?) it's just a negotiation. It's not like the banks thought an expat Nakheel marketing guy was 'sovereign backed' when they loaned him money either, eh, Sh. Maktoum?

Coming in Part 2: The Escape... to Oman

Dubai loses the plot - no sexy sexy times for expats. And the airport project strikes water

Photo: Thinking of a holiday in Dubai? You had better behave! [getty images]

The way Dubai is repeatedly imprisoning people for insignificant 'offenses' is certain to start to impact the tourist trade, as word spreads that you could be thrown in jail for such terrible crimes as kissing in public or sending sexy text messages.

Someone is losing the plot in the Emirate.

In the latest story, 2 Emirates cabin crew have been given 3 months in prison for sending each other sexy text messages, reduced on appeal from the original sentence of six months and deportation. The woman's husband had obtained the texts from the national telecom provider in a divorce dispute, and seems to be somewhat filled with a desire for revenge and to win custody of his child. It seems sending sexy texts in the UAE amounts to the crime of "coercion to the commitment of sin".

You've been warned.

The National has the story, but it's all over the net today.

Airline pair jailed over sex texting
Awad Mustafa
March 17. 2010
DUBAI // Two Emirates Airline cabin crew have been jailed for three months for exchanging lewd text messages.

RS, 42, a flight attendant, and EB, 47, a cabin services supervisor, were convicted of “coercion to commit sin” after sending each other sexually themed SMS messages, according to court documents released yesterday.

The pair, both Indian, were sentenced to six months in prison and deportation by the Dubai Court of Misdemeanors in December.

The court said the texts “fulfilled all the necessary angles of coercion to the commitment of sin”.

The Appeals Court upheld that decision last week. But it halved their jail sentences and scrapped the deportation orders. There was not enough evidence to prove that the pair had extramarital relations, it added.

The flight attendant’s sister, BM, 25, was also convicted of perjury and sentenced to three months and deportation by the lower court. Her deportation order was withdrawn on appeal.

The case first went to court after the flight attendant’s husband, SG, filed a lawsuit against his wife in March 2009 claiming that she was involved in an illicit relationship with the supervisor.

The couple had been embroiled in a divorce battle since 2007.

SG has now gained sole custody of their four-year-old son, although it was not clear when the couple divorced.

During the divorce proceedings, SG requested that the courts order Etisalat to produce copies of his wife’s text messages, which, he said, proved the illicit relationship.


The telecoms provider turned them over to the court in October 2008.

Five months later, the flight attendant’s husband filed a criminal complaint against her, charging her with having an affair and saying her text messages were an insult to Islam.

She told police that her sister sent the messages to the supervisor, who also denied any relationship with RS. He told officers that he had been seeing her sister for the past four years. Prosecutors decided that was untrue, however, leading to the perjury charge against the sister.

Meanwhile, Muscat Airport runway costs go up at least Half a Billion dollars.

Muscat's new airport is in trouble. A Ministry official was quoted in the papers as saying the new runway would be delayed for 2 years and cost an extra $500 million due to hitting seawater.

What the official didn't mention that the project screwed up big time. Not only did they skimp by not doing basic geotechnical investigation - drilling exploratory boreholes to sample the rock and soil where the runway was planned - but my sources tell me similar problems had already hit the sewage waste water project last year, and so should have been obvious.

The problem is the contractors needed to dig quite deep to make a proper runway that can be engineered to last and withstand being pounded by planes landing all day. And the excavation, on land right by the ocean, needed to be a lot deeper than the level of the aquifer. Doh!

My sources, who know a thing or two about engineering, also said $500 million was a low estimate, and it could end up adding an extra billion dollars, almost doubling the cost of the runway. This is because they will have to build it up even higher, and thus needing a LOT more rock and sand.

Reuters reported that the extension of Oman's main airport in Muscat will be delayed by 2 years and may cost the state up to an extra USD 500 million after runway excavations hit seawater.

The official said that the Muscat airport extension will now be completed in 2014, not in 2012 as expected due to soft ground which contractors come across in some places. He said that it would cost the government up to USD 500 million to pay for reinforcements to fill affected ground in places where civil work excavations hit seawater.
...

Speaking of cock-ups, in other news, The Asian Beach Games project, despite rumours to the contrary, will apparently be ready on time. Even my sources confirm this, not just OMRAN.

However, the project is beset with problems, with chaotic redesigns on the fly coupled with the immovable date for completion in November this year, as Oman hosts the Asian Beach Games. The bits that will appear on TV are already finished, and the hotel will be OK. But the athletes village will be a Heath Robinson affair that will not be built to last, and plans to create yet another OMRAN mini-city at the site have been shelved, replaced by a now 4 star hotel (was 3 star) and the usual Integrated Tourist Development we know and love.

There are also persistent rumours of sweet contracts being awarded** to people who just happen to be closely related to senior people at Omran and the Ministries of both Sport and Tourism. To enable things to be done super quickly, CEO of OMRAN, Mr. Wael bin Ahmed Al Lawati, appears to have been given the ability to by-pass normal tender board procedures. I'm sure that there is no way such a removal of standard oversight would lead to contracts being given to relatives or buddies.


Coincidentally and totally unrelated, as the deadline approaches the budget is going through the roof. So while the project will scrape home and will look great on TV, the costs will be huge and the final product nothing like as grand as what was originally approved.

Small wonder the leadership of the project, under the responsibility of the Muscat Asian Beach Games Organising Committee (MABGOC) and Director General Eng. Habib Macki, have been replaced resigned. On Tuesday, Muscat Daily reported that executive Director Sheikh Soud bin Hamed Al Rawahi had decided to spend more time with his family due to the pressure of work.... In January, Talal al Kishry the deputy Director of Operations resigned also.

But it's only Government money after all.

** Dear Mr State Auditor, maybe have a look at the contracts surrounding the Convention Centre...

The murder of Hamas leader Al-Mabhouh in Dubai. Another STRATFOR analysis

The recent murder of Hamas' No.1 arms supply procurer/manager, Al-Mabhouh, was only minor news to start with. I don't think there is anyone at all knowledgeable about covert operations or the situation in Gaza who didn't immediately know that there was only ever 1 outfit that would be able and willing to perform such a brazen assassination: Israel's Mossad.

Even if there had been no evidence at all, that much was obvious.

But I must admit, Dubai have been exceptionally good at pursuing the story, publishing hard evidence, and controlling the new cycle by periodically releasing information. The most interesting things from my point of view have been:

1/ How a system of CCTV in an urban environment, combined with the 1000's of tiny electronic trails we all leave as we conduct our daily lives, make it trivial for a modern police/intelligence force to track us, learn a scary amount about us, and monitor what we do. Jack Bauer of 24 fame would be proud (well, except it was all after the fact). That Dubai are releasing this capability so blatantly is a bit reactionary. Usually a good intelligence outfit conceals this sort of stuff.

2/ How pissed off Dubai is that it was done on their patch. Following the assassination (by gun-fire in the open, in a parking lot in Jumeira) of the Chechen ex-rebel leader last year, Dubai Inc. is super pissed off at being shown to be a bit of a pussy and not a safe place for terrorists and arms dealers. Being a haven for those who are rich but wanted criminals or political fugatives, on the run from their home countries [Iran, Iraq, Sudan, Russia, Chechniya, Egypt, Pakistan ...], as well as a great place to do all sorts of shady deals between Iranians and others, has lately been a minor business model for the nation-state. Money laundering controls are famously lax if the price is right.

3/ The recent story that those 'suspected' of being Israeli will be barred entry to the UAE was almost too comical to be true. Apparently now no matter what passport you're holding (even if its a real one), UAE Immigration will now be playing a game of 'Spot the Jew', based on such objective measures as accent and mannerisms. Perhaps they will be able to get some consultancy training from Borat...


Note: The satirist who plays Borat, the wonderfully talented Sasha Baron-Cohen, is very, very Jewish.


Here's the UAE official describing the new plan:

... "Earlier, Israeli dual citizens could easily enter the country even if officials recognised them as Israelis from their accents and traits," he said.
"But [from] now on they will be carefully scrutinised, regardless of what passport they hold."
The Dubai Police Chief added that this did not mean anyone would be mistreated. He said immigration officers are to undergo intensive training to study Israeli people and identify their traits, accents, body language and manners.

Of course, the issue of why a well known wanted terrorist and murderer was welcomed into the UAE in the first place has not been discussed. Naturally.

And we all know how critical the Arab world is on the general topic of immigration, travel and racial stereotyping at airports, as long as its the West we're criticising...

Ah well.


And as promised, that Stratfor Analysis.

"This report is republished with permission of STRATFOR"

Using Intelligence from the al-Mabhouh Hit
By Fred Burton and Ben West

The assassination of senior Hamas militant leader Mahmoud al-Mabhouh on Jan. 19 is still generating a tremendous amount of discussion and speculation some six weeks after the fact. Dubai’s police force has been steadily releasing new information almost on a daily basis, which has been driving the news cycle and keeping the story in the media spotlight. The most astounding release so far has been nearly 30 minutes of surveillance camera footage that depicts portions of a period spanning the arrival of the assassination team in Dubai, surveillance of al-Mabhouh, and the killing and the exfiltration of the team some 22 hours later.

By last count, Dubai police claim to have identified some 30 people suspected of involvement in the assassination; approximately 17 have been convincingly tied to the operation through video footage either as surveillants, managers or assassins, with the rest having only tenuous connections based on information released by the Dubai police. In any case, the operation certainly was elaborate and required the resources and planning of a highly organized agency, one most likely working for a nation-state.

Pre-Operation
While the 22-hour period depicted in the video showcased the tactical capabilities of the various teams, it hardly tells the whole story. In order to pinpoint the location of al-Mabhouh on the day of his killing, the organization responsible for this operation would have had to have tracked al-Mabhouh for months, if not years. This can be done in three ways: technical surveillance, utilization of human sources and physical surveillance.

Technical surveillance of al-Mabhouh would include monitoring his e-mail, telephone calls and other forms of electronic communications such as online credit-card transactions and travel reservations. This could reveal his physical location and future plans, which would allow the assassination team to anticipate his location and prepare well ahead of time. With such a large team involved in the assassination, careful coordination and planned movements would have been required to ensure that all members were in place without attracting attention.

But technical surveillance has limitations. An experienced operative like al-Mabhouh (who had been the target of two previous assassination attempts in as many years) would most likely have taken precautions that would have limited his electronic visibility. The operational team likely used human sources with close ties to al-Mabhouh who could corroborate the information and possibly influence the target’s movements, putting him in place for the operation. Human sources could have included al-Mabhouh’s colleagues within Hamas or a member of a rival group such as Fatah. (Three Palestinians suspected of being members of Fatah were arrested by Dubai authorities in connection with the assassination, indicating that the group may have provided human intelligence to the organization responsible for al-Mabhouh’s assassination.) Other people could have been recruited using a number of incentives (including cash) without their knowing the consequences of their assistance. Both the technical and human intelligence operations would have been run by intelligence officers operating abroad and at locations separate from the operational team.

According to Dubai police, physical surveillance was conducted by members of the operational team during al-Mabhouh’s previous trips to the United Arab Emirates. Physical surveillance is a critical part of any effective assault (whether it’s a clandestine intelligence operation or a car-jacking) because it gives the operatives an opportunity to become familiar with their surroundings and recognize their target in his or her “natural” environment.

Once all this homework was done to establish al-Mabhouh’s normal routines and determine his approximate location and duration of his stay in Dubai, the intelligence-collection process moved into the deployment phase and an operational team was sent into action.

The Operation
Prior to Mabhouh’s arrival, surveillance teams set up in the airport and at different hotels to make sure they could obtain a visual confirmation of their target. Based on their intelligence of his prior trips to Dubai, planners placed teams in two hotels to wait for al-Mabhouh approximately an hour before his arrival. They also had a surveillance team waiting for him at the airport to follow him as soon as he entered the country and report his movements to the rest of the team. While it wasn’t captured on video, we suspect that a mobile surveillance group tracked al-Mabhouh from the airport by car. To help ensure a successful outcome, the operational team used overwhelming force to prevent the target from ever seeing the same face twice. When it was established that al-Mabhouh was staying at the Al Bustan Rotana, the team responded by abandoning their other posts and directing their focus to that hotel.

Once al-Mabhouh was identified, the team locked on to him at the hotel and started initiating further steps in the operation. The first surveillance team watched al-Mabhouh register at the front desk and then followed him to his room, noting the target’s specific room number. This was relayed to other members of the team, who then placed a reservation for the room across the hall from al-Mabhouh, which gave them direct access to their target. The selection of the room is very interesting for two reasons. First, it was directly across the hall from al-Mabhouh’s room, giving the team a perfect spot from which to monitor his movements. Second, the room was just behind the video camera for that floor and the camera was trained on the emergency stairwell exit, which allowed the assassination team to carry out the attack on his room without being filmed.

Meanwhile, down in the hotel lobby, surveillance teams were rotating to monitor the target’s movements in and out of the hotel. At one point, a surveillant is seen following al-Mabhouh out to the street to relay by cell phone the type of vehicle he had entered. These surveillants, operating in teams of two, used disguises such as hats, sunglasses, beards and work-out gear to establish a cover for action and better conceal their identities. While many members of the operational team were identified on closed-circuit television (CCTV), hats and sunglasses helped distort their images and reduce the already low risk of being recognized by the target or any protective team during the operation.

Another necessity in any operation like this is communications. Surveillance video of the team involved in this operation shows them using cell phones to send text messages and talk to other members of the team. According to reports from Dubai police, the cell phones used in the operation were dialed to an Austrian number, likely the operations and support center for the team on the ground and any others involved in the operation. This might have been an open conference line into which all members of the operational team could dial to monitor the movement of their target. It is unlikely that the center was actually in Austria; it probably used a proxy phone line to mask its true physical location.

Assassination and Exfiltration
At approximately 8:30 p.m. on Jan. 19, after al-Mabhouh returned to his hotel room from a meeting, the assassination team moved in. It was important to carry out the killing at a time and in a manner that would give the team the maximum window of opportunity. They suspected that al-Mabhouh was in for the night, which meant that nobody would miss him until early the following afternoon, giving the team ample time to flee the country. The team carried out the assassination smoothly, with video surveillance showing only two operatives casually talking outside the elevator (a cover for monitoring the hall for possible distractions) — in other words, nothing out of the ordinary. The assassination team members also exhibited no unusual behavior when they departed the scene. Demeanor is extremely important, and the ability of the team to act calmly and naturally and not catch the attention of security guards monitoring CCTV ensured that the act remained a secret until hotel cleaning staff found the body more than 17 hours after the entire team had departed Dubai.

The assassination team also killed al-Mabhouh in a way that apparently confounded medical examiners trying to determine the cause of death, delaying the announcement of a criminal case for nine days. This delay gave the operational team ample time to cover its tracks, possibly by using third- and fourth-country border crossings, additional false identities and safe-houses, making it much harder for Dubai authorities to track team members to their ultimate destinations. This confusion appears to have been created by the use of a muscle relaxant called succinylcholine (also known as Suxamethonium), which, if used in large enough quantities, can cause the heart to stop, making it appear that the victim died of cardiac arrest. The drug also has a very short half-life, meaning that traces would degenerate and virtually disappear shortly after injection, making it ideal for covert operations such as this one.

The team was not able to pull off the operation with complete anonymity — it is virtually impossible to operate in a modern environment without leaving some kind of electronic trace. The Dubai police were able to use video surveillance from the airport, hotels and a nearby shopping center to trace back the movements of the operatives and establish their identities according to the passports that they used. These later proved to be fraudulent passports from the United Kingdom, Ireland, Germany and France — but they were extremely well-made fraudulent passports that were discovered later, only after video surveillance prompted closer scrutiny; customs officials were unable to detect this when the operatives were arriving or departing. Moreover, the credit cards used by several members of the operation team were linked to a company called Payoneer. The company’s CEO is a former member of Israel Defense Forces special operations, and Payoneer has financial backing from a company based in Israel.

Dubai police have announced that they retrieved DNA evidence from at least one of the members on the assassination team and fingerprints from several others, giving authorities pieces of evidence that are unalterable, unlike a passport. However, DNA evidence is only helpful when it can be compared against an exemplar. If Dubai police are unable to find a match to the DNA sample or a fingerprint, then these clues will offer little immediate help.

The passports also provide little immediate help in terms of tracking down the suspects. The discovery that fraudulent British, Irish, German and French passports were used has created a diplomatic problem for Israel (Mossad is understandably at the top of the list of suspects), which raises the profile of the operation considerably. This is certainly not what a clandestine operation is supposed to do. Although the operatives will probably never be found and handed over to UAE authorities, the fact that so many details of the assassination have been made public jeopardizes the anonymity that is supposed to surround this kind of operation.

Potential Consequences
Al-Mabhouh was hardly a likable character. As a senior Hamas military commander, arms smuggler and liaison to Iran, he was already on the terrorist watch lists in the countries that have complained about the use of fraudulent passports. Public indignation is a necessary and expected reaction from these countries to save diplomatic face, but when it comes down to it, there would be few incentives to seriously punish Israel, if it indeed sponsored the hit. The police of Dubai and the United Arab Emirates, rightfully frustrated that they are tasked with solving an unsolvable case, will still probably not miss al-Mabhouh. Their efforts to stir up outrage over the assassination are likely fueled by their desire to save face in the Arab world, where the Palestinian cause is of high rhetorical importance but little strategic importance.

The fact is that the high level of complexity involved in this assassination, along with the smoothness with which it was carried out, is evidence that the operation was undertaken by an elite covert force, the likes of which could only be sponsored by a nation-state. The ability to conduct preliminary intelligence collection, to muster a large and coordinated team of skilled operatives, to fabricate passports to an exacting degree, to successfully exfiltrate all members of the team — all of this requires a significant and well-funded effort that, we believe, exceeds the current capabilities of any non-state terrorist group. It is worth noting here that the most impressive aspect of the operation was the team’s tradecraft and demeanor. All the members of this team were professionals.

Indeed, with so much time having already elapsed, and if the operation was sponsored by a nation-state, it is highly improbable that any of the operatives involved will ever be caught. However, countries around the world are offering their assistance in the case, including the United Kingdom, the United States, Canada and Australia. Few officials from these countries actually believe any of the operatives will be apprehended, but that is not the real reason to participate in the investigation. What officials are really looking for are the granular details of how this group of assassins and surveillants operated. These details are extremely valuable in ongoing counterintelligence efforts by countries to thwart foreign intelligence agencies operating on their home turf. The information can provide clues to past and future cases, and it can be used to build databases on covert operatives, so that if any of these people show up unexpectedly at an airport, hotel or embassy in the United Kingdom, the United States, Canada, Australia or elsewhere, the alarms can be sounded more quickly.

Abu Dhabi relent and bail out Dubai World with yet another $10bln

The words 'piss-up' and 'brewery' come to mind. First we had the stream of official announcements this year that everything was OK, of course Dubai would meet its obligations, stop criticising us, etc. Then the reshuffle at the top levels of Dubais various semi-commercial entities, followed by the shock announcement of a debt default and that Dubai would not stand by the debts of Dubai World and Nakheel, and now... they've bought some more time.

Today Abu Dhabi relented and agreed to lend the cash-stapped ruler of Dubai yet another $10bln specifically for sorting out Nakheel's Sukuk bond (due today $3.52bln + 15% interest) which will, apparently be paid in full.

Bondholders - especially those who bought the bond in the market at steep discount earlier this year - will be very happy that Abu Dhabi finally came to the rescue. I would imagine that a lot of those bond holders actually happen to live in Abu Dhabi.



Photo: Who you gonna call Sh. Maktoum?

Dubai's Sh. Maktoum naturally talked his usual schtick about Dubai being committed to being a Global Financial Leader, 'good governance' etc etc etc. (see below) Yawn. I think even those that still think Sh. Maktoum a financial genius and visionary must get uncomfortable with the unrelenting bullshit he pumps out in direct contradiction to the facts. (Orwell would love Dubai).

Dubai has realised it at minimum needs a comprehensive corporate Bankrupcy law (although the Dubai Government are calling it a "reorganisation law") to enable creditors to at least know what the minimum rules are. A personal bankruptcy law would also be a tremendous improvement.

So in the past 12 months Maktoum has got $25bln from Abu Dhabi, probably borrowed long term at around 4%. And there will be haircuts required by some creditors no doubt. But big brother obviously was worried about the impact the sudden default announcement had caused on the wider UAE economy and their own aspirations: shares down heavily, several country's Governments complaining about Dubai's other billions in unpaid bills to their contractors [Japan, UK, Turkey, Greece, US,...], plus obvious embaressment at the GCC conference (on-going in Kuwait) with the Dubai crisis causing all the regions' Governments to experience more expensive borrowing costs and tightening credit lines. Everyone must have been asking Abu Dhabi to get a grip. As Maktoum himself said today:

...Recently, Dubai World announced that it might not be able to commercially support its obligations. Since that time, the Government of Dubai has worked closely with the Abu Dhabi Government and the UAE Central Bank addressing and assessing the impact of Dubai World on the UAE economy, banking system and investor confidence.

Dubai is now confirmed as a vassal of big brother Abu Dhabi, with Maktoum being made to learn a lesson and come to heel. Cash is king. I wonder when we'll see a merger between Etihad and Emirates...

The bailout is good news for Oman. The pressure on our own access to credit will ease, and perhaps there will be more sophistication in the market in not assuming Sovereigns will stand behind debt. Who knows, maybe Sama Dubai will even get off its arse and do something with the Yeti development.

I do wonder what's happening with the Blue City bonds... The Omanis might have noticed that defaulting on one's international obligations does not go unnoticed in the international financial community...

Extract from Statement by Sheikh Maktoum Chairman of the Dubai Supreme Fiscal Committee (published in The National)

... Today’s actions, taken together, demonstrate our strong commitment as a global financial leader to transparency, good governance, and market principles.

There will certainly be challenges periodically, just as there are challenges in other major financial centers around the globe. We believe today’s actions will best serve the interests of all stakeholders.

We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices.

Dubai is, and will continue to be, a strong and vibrant global financial center. Our best days are yet to come. The Government of Dubai remains committed to its high standards and its obligations. We are confident in our economic model, and we are confident in the long-term health and outlook for our economy.

The actions taken today are consistent with our market development, and we believe they are the actions that will best serve the interests of all stakeholders.

Dubai ruler bounces a $3.5bln cheque, but probably will avoid the jail time...

After Dubai got its hands on another $5bln loan from Abu Dhabi controlled banks, international investors had assumed that the money would be in part used to repay the huge debts coming due from Nakheel, the real estate development arm of Dubai World. Many were speculating on Nakheel debt earlier this year, as it was selling for 65cents in the dollar while a payout would bring in $1.15. Easy money, it seemed according to the National, as in seemed inconceivable that Abu Dhabi or MAktoum would allow such a default.

Oops. Wrong.



Dubai World instead announced a further restructuring (ie sacking people, more loans, selling assets and and pulling back on projects) and that it was 'asking' Nakheel and Dubai World bond holders to wait for their money until May next year, even though it is due in December. The announcement [thanks for the link Muscato! LOL] has sent CDS rates for Dubai and the entire region sharply higher and seriously blown what little remaining confidence was left in Dubai being willing and able to meet its obligations. The $10bln Dubai previously borrowed from the UAE Central Bank [=Abu Dhabi] is already gone it seems.

If the Nakheel bond is not repaid in December as promised by Dubai's leaders, it will be a default, despite the spin being put on it by Dubai's press.

Ironic then that the Dubai based Gulf News at the same time are still showing a neat little video from July by local lawyer Hassan Arab on how the UAE courts view bounced cheque suspects, helpfully explaining the legal implications in Dubai of a bounced check in the Emirate:

Any bounced cheque .. is a crime.. As per Penal Code 401, the punishment for a bounced cheque is either a fine of a minimum of 1000 dhirams [~US$250] or a period of 1 month to 3 years in prison'

Dubai has suffered from exteremely poor legislation dealing with bankruptcy and insolvency, with no possibility under the law for personal bankruptcy. This is what prompted many expats to flee their debts over the past 9 months, as it is treated as a crime in true Victorian style. Defaulting on a Sukuk bond is essentially the same as bouncing a cheque, except ... er... well... its different. Bouncing cheques is what ordinary people do, while restructuring and defaulting debts is what big insolvent corporations do.

But what's good for the expats of Dubai is, of course, not something the rulers of Dubai feel applies to them. So the likely Nakheel default will not be leading Sh. Maktoum to see the inside of a Dubai prison, a fate many expats have suffered despite their losses being insignificant compared to defaulting on a $3.52bln loan. Nakheel has another $3.6bln loan coming due in May next year too, on top of various other syndicated loans.

The suggestion of a default sent entire European stock markets down around 3% in a day, as the ramifications of Dubai failing to pay its debts would impact the world financial system.

Welcome to Dubai folks, where everything is just peachy! Please bring cash. The cheque's in the mail, by the way.


Photo: Hogarth's depiction of a Georgian debtors prison.

Dubai starts to pay the piper - heads rolling

In a great tip off from JustCurious, this story in the FT a couple of days ago about the recent replacement of the head of Dubai International Financial Center.

The story* describes, in perhaps as direct a way as could be possible given Simon is based in the UAE, the fallout in the upper levels of Dubai Inc. management following the impact of the recession there.

Dubai have grown increasingly touchy over any negative press as their real estate lead boom, aka Never Never land bubble of hype, was pricked by the liquidity crisis, and their HUGE debts were exposed. The laws recently passed their make it difficult to differentiate fair criticism of whats going on in Dubai or Abu Dhabi from illegality, especially because the whole thing is fundamentally based on confidence that this massive bet the Maktoum family has made will actually be sustainable and pay off. It right now, is very much a confidence .... situation.





Anyone who - even (or especially) with some justification - questions the bets being made, or the economics, or the debt problems, or the resulting governmental and administrative problems, or those crazy insane artificial islands, or the treatment of expatriots or women, or the nature of the financial relationships within the ruling elite of the UAE, can be accused of being an economic traitor to the bubble economy.

For example. Ownership of the Dubai airline Emirates was 'transferred' in Dec 2008 from the Government of Dubai to the Investment Corporation of Dubai (ICD). Rumours have abounded since the big $20bln bond issue that big brother Abu Dhabi (perhaps via the UAE National bank) took an effective 51%-78%-100% (you pick) mortgage, along with other collateral, for underwriting the loan to [not illegal to say in Oman, but in Dubai) technically insolvent Dubai [in hock for ~$85 bln(?) and nowadays a net oil and gas importer remember].

But publically, far as I can tell, the Maktoum family owns it, personally. And of course a handshake agreement, or even the right sort of glance, would probably be enough, if you're Abu Dhabi's ruling family. (Abu Dhabi strill pumps about 2mln barrels a day. Nice. That F1 circuit cost probably less than a week's production). There also seems to be a correlation between Abu Dhabi's control on Dubai's money and increased repression within Dubai of 'loose morality' i.e. scantily dressed Expats and consumption of alcohol...


Photo: from www.wearmeoutkids.com - Made for Dubai?


I'm afraid I was never a fan of the Dubai business model even before the crash, but I'll admit I do enjoy the restaurants and pubs. Meantime, Abu Dhabi have little choice but to support Dubai with their huge SWF and the still robust oil revenues.

As for those readers within the bubble of Dubai, who buy the Maktoum claim that everything's OK, should note that before Abu Dhabi kicked in the $10bln, the market prices for Dubai's Credit Default Swaps*** (a sort of insurance against a loan to Dubai going bad) exceeded those for famously insolvent Iceland, reaching 1,175 'basis points' earlier this year, equivalent to having to pay 11.75% per annum for a 5 year default insurance on Dubai Inc's Sovereign debt...

Dubai ousts financial chief over debt troubles
By Simeon Kerr in Dubai
Published: November 20 2009 20:38 | Last updated: November 20 2009 20:38

Dubai has removed the high-profile governor of the Dubai International Financial Center as a political power struggle caused by the emirate’s financial troubles continues to build.

Omar bin Sulaiman, governor of the centre since 2004, has been replaced by Ahmed al Tayer, a former finance minister. He is chairman of Emirates NBD, Dubai’s largest bank, and a member of one of the merchant families that helped build the foundations of the emirate’s economy.

The US-educated Mr bin Sulaiman appears to be the latest victim of Dubai politics as the emirate seeks to redress the excesses of the supercharged growth from 2003 to 2008 that created an $80bn debt pile and a burst real estate bubble. The ruler’s court, the traditional root of the sheikh’s power base, has assumed increasing powers, including controlling a $20bn (€13.4bn, £12bn) fund that will support cash-strapped state-linked businesses.

The ruler on Thursday also reshuffled the board of the Investment Corporation of Dubai, a government company overseeing the government’s stakes in commercial companies such as Emirates airline.

The ICD board reshuffle has removed three of his lieutenants: Mohammed Gergawi, head of Dubai Holding; Sultan bin Sulayem, head of Dubai World; and Mohammed Alabbar, chairman of Emaar Properties, the government-linked real estate giant.

This triumvirate was instrumental in Dubai’s transition from a regional trading centre to global business hub over the past decade.

The replacement of Mr bin Sulaiman with an old school government official from an established Dubai merchant family could be another signal of a back-to- basics policy.

“This is all about projecting a more conservative image to the bankers, to show that Dubai will be more careful in the future,” said one observer.

Dubai is trying to renegotiate billions of dollars of debt with bankers while also raising the finance needed to meet other obligations, such as the $4bn that becomes due in mid- December on an Islamic bond issued by Nakheel, the government-owned developer that built the city’s Palm Islands.

An anti-corruption campaign against executives who abused their positions of power for personal gain during the real estate boom has recently stepped up a gear.

The authorities are now said to be investigating the bonus culture and real estate holdings of many executives at the state- linked companies that helped propel Dubai to global prominence during the boom.

Yet some local observers are also scratching their heads at the arbitrary nature of the reshuffles, with some executives responsible for ballooning debts and bad investments apparently escaping retribution.

* I've ripped the online segment below (get a blogger option FT!) because, as JC pointed out, its just so nice to be able to run a story on the UAE that is not being reported in the UAE. Bad Dragon, sorry FT and Simon. Please do and register online with the Financial Times immediately readers!

** Credit default swaps, or CDS, are contracts in which a buyer pays a series of payments to a seller, and in exchange receives the right to a payoff if a credit instrument goes into default, or on the occurrence of a specified credit event, for example bankruptcy or restructuring. One basis point on a contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. An increase signals a deterioration in the perception of credit quality.

Lessons from Dubai.

Following the BBC Panorama broadcast yesterday, on the shame that is Dubai's horrific treatment of migrant construction labour, my attention has been drawn to the recent Independent Newspaper articles [thanks Willie!] and various UAE blog posts.

Links/exerpts are at the end of this post.




Thankfully, here in sunny Muscat we mostly avoided the excesses of the UAE's Sin City. Now, the Dubai experience dealing with the aftermath of their excesses should provide a dramatic lesson for Oman on many fronts: real estate, environment, expats, bankrupcy law, debt, tourists, wealth, Government, and the old adage: "If it seems too good to be true, it usually is".

Take the status of their housing development market, with Arabian Business reporting that 70% of expat owned real estate in the UAE is in 'negative equity', with swathes of buildings incomplete and likely to stay that way. Not to mention the ridiculous excesses exemplified by the Atlantis Hotel, Burj, and The World's empty artificial islands.

Recently, too many Omani had come to believe (like many around the world) that the way to wealth was easy: through speculation in shares, property and land; by being allowed to be a minority partner in some Government development; by being Mr.5% for some foreign company; or by effectively taxing the income stream of the expats you could sponsor. Money was swilling around the country as oil prices exploded and the Government spent large on big industrial and oil infrastructure projects.

Perhaps now there can be a return to sensibility: That wealth should be gained through professionalism, hard work and true value creation. That education is important because of the skills and knowledge it brings and not because it is supposed to provide a magic piece of paper that gives an automatic right to sit behind a desk reading the papers all day. That borrowing beyond your means to consume and speculate is unwise. And to be wary of hubris.

And that just because others have treated people horribly and inhumanely in the past [USA - slaves, UK - Indians, Japan - Koreans], or still do so now [China - Tibet, Pakistan, Dubai - NRIs ...], doesn't make it OK for us to do the same. Truthfully decribing a criticism as hypocritical doesn't mean the criticism isn't true. We can and should be better than that.

An expat minimum wage and enforcement of decent terms and conditions is needed here urgently, not just because it's humane, but because we have to meet the number 1 challenge of this country - unemployment/under employment and a huge ratio of under 18 to working age people. Aluminium plants may be another cleaver way to export artifially cheap gas, but they don't actually provide jobs for very many people.

Oman must convert itself from an economy based on industrialisation, hydrocarbons and cheap labour to a service based economy with Omanis serving Omanis, and doing so with efficiency and professionalism (Government included). Having an endless supply of cheap, low-skill imported labour halts the effective Omanisation of the service industry, and legislating 'job types' or compulsory Omanisation % is highly inefficient and ineffective.

The comments section on the Johann Hari OpEd piece is a story in itself, and generally binary (either totally disagree/totally agree]. The emotion, vitriol and back story evident in some of the comments made is incredible. Especially defensive are those comments from Emirati and Dubai western expats, who are somewhat pilloried in the article.

Check these links out.

The Desert Blogger.

The strange world of Middle East media:

The Panorama appreciation society
Posted by desert_blogger
Monday, 6 April 2009 at 06:55 pm

It can de difficult to express just how frustrating it is, now and again, to be a journalist in a region that lacks so many basic facets of personal liberty. I'm both deliriously happy, and a little ashamed, to read the synopsis of Panorama: Slumdogs and Millionaires, which will be screened by the BBC in the UK in two hours time, for the highly respected, international current affairs show has chosen to gather its tanks on the lawns of Dubai's migrant labour market.

I'm happy, because, like hundreds of thousands across Dubai, I walk in the shadows of the labourers from the Indian sub-continent (almost) everyday, and while I can't begin to claim to know their way of life, I know of the impossible situation that these men face. I know of their exploitation, while being acutely aware of the glamorous reputation that Dubai manages to convey on the world stage - what Panorama's Ben Anderson calls, "one of the greatest PR triumphs of the past 20 years."

And this too is the source of my shame. As a journalist in Dubai predominantly covering the construction industry, should it not be my job to write the story that Ben Anderson will have the privilege of telling in two hours time? Well, yes, it is. So do we? Well, yes, we do.

Last July, I wrote and we published this article, passionately supportive of the introduction of a minimum wage for Dubai's oversea's labour force. ...

And yesterday a long, 9000 word article by Johann Hari in Independent: Comment has been drawing lots of attention in the UAE bloggosphere, either attacked as a biased hatchet job, or praised as an honest view of the real and deep problems of the giant fake plastic Ponzi-scheme built on the bones of exploited NRIs and a sea of sewerage that is Dubai, or perhaps more reasonably a bit of both. But its a nice (albeit one-sided) story, apparently full of actual interviews and quotes.

The dark side of Dubai

Dubai was meant to be a Middle-Eastern Shangri-La, a glittering monument to Arab enterprise and western capitalism. But as hard times arrive in the city state that rose from the desert sands, an uglier story is emerging. Johann Hari reports...

...

I say. I can't stand it. She sighs with relief and says: "This is the most terrible place! I hate it! I was here for months before I realised – everything in Dubai is fake. Everything you see. The trees are fake, the workers' contracts are fake, the islands are fake, the smiles are fake – even the water is fake!" But she is trapped, she says. She got into debt to come here, and she is stuck for three years: an old story now. "I think Dubai is like an oasis. It is an illusion, not real. You think you have seen water in the distance, but you get close and you only get a mouthful of sand."

As she says this, another customer enters. She forces her face into the broad, empty Dubai smile and says: "And how may I help you tonight, sir?"

And the new UAE media law is a worry. We always knew recession and unemployment leads to fascism I guess...
MiddleEast Blog

...
The government has already taken steps to control media coverage of the crisis with a new draft media law, which would make it a criminal offence to “damage the country’s reputation or economy”. The new law could see those reporting about the crisis faced with fines of up to 1 million dirhams (around £190,000).

Last month Humaid bin Dimas, a spokesman for Dubai’s Labor Ministry, refused to confirm, deny or comment on local newspaper reports that 1,500 work visas were being cancelled every day.

“At the moment there is a readiness to believe the worst,” said Simon Williams, HSBC bank’s chief economist in Dubai. “And the limits on data make it difficult to counter the rumours.”

Dubai frets about Youtube: Chief of Dubai Police calls for ban

The Middle East continues to struggle with the implications of the internet in terms of what people can choose to watch on their computers. Once again, Youtube is the target of complaints, with one Lieutenant General Dahi Khalfan Tamim, Chief of Dubai Police yesterday calling for the innocuous YouTube website to be blocked.

Youtube is by internet standards pretty tame image-wise, but there are indeed clips available that voice ideas many would find truly shocking and offensive, such as woman kissing each other, or sacrilgious mini-movies on Islam, or any religion for that matter. But as always, the default solution is BAN! BLOCK! Instead of educate, and encourage independent thought. And perhaps getting parents to supervise their children while on line.

Excellent.

Such attitudes will help ensure the region continues to stimulate innovation, computer skills and creativity among its youth, as they immediately try to find ways to circumvent such heavy handed controls.



I especially like the quote on how Dubai police are all for person freedom... well, unless you want to use that freedom watching harmless mini-movies that they don't approve of in the privacy of your own home, obviously. I'm so glad that the entire planet (unacceptable to any country, society or individual) is being so ably protected from itself by Major General Al Mazeina of the Dubai Police.

Thank goodness they banned public dancing, kissing and hand-holding too, or the place would really start going downhill. You can't be having people watching something that mocks religion while swilling a beer in the company of 2 Ukrainian prostitutes in a Dubai Hotel, can you?



Is this big brother Abu Dhabi demanding a little behavioural pay back for their loaning Dubai $10bln++??

Police highlight negative aspects of YouTube
By Siham Al Najami, Staff Reporter
Published: April 03, 2009, 23:01

Dubai: A session held at Dubai Police highlighted the negative aspects of YouTube as part of the Juvenile Association in Dubai's duty to raise public awareness on the dangers of the internet.

Last month Lieutenant General Dahi Khalfan Tamim, website to be blocked.

He said the video-sharing website included indecent material that influenced the younger generation towards delinquency. He added the association was launching a campaign for this purpose, as its duty to protect the youth.

The areas of discussion with a delegation from Google covered the site's negative points such as showing pornographic clips and blasphemous clips that mock religions.

"Dubai Police completely supports the personal freedom of every individual but there is certain content on YouTube that is absolutely unacceptable to any country, society or individual," said Major General Khamis Mattar Al Mazeina, Deputy Chief of Dubai Police.
Dubai Police will collaborate with the Telecommunications Regulatory Authority to ensure the safe use of the internet that will encourage the youth to benefit from it.

Google's Gisel Hiscock, Director of New Biz Development in Europe, the Middle East and Africa, said her visit was part of a tour she is undergoing in the region to listen to ideas and recommendations as well as to prepare for future meetings with officials to address specific concerns.

Dubai economy going tits up - the new ghost town

Everyone here who has just been overseas is talking about one thing: Dubai - and how it is totally gone dead.

As a dodo dead.

Crossing Maktoum bridge in the middle of the afternoon in 2 mins dead.

The airport is EMPTY. I was there last week and no-one was around except a lot of bored staff. It was spooky. Normally Dubai airport is like the space port in Star Wars. Full of every nationality under the sun and a few from nearby planets. (Think Men in Black for my younger readers).

But now....



Retail sales were already waaay down in November, and tourism and business travel globally have collapsed...

Dubai is in the shit. Construction and a booming global future was the whole reason d'etre of the economy. Even Abu Dhabi must be starting to balk at the liability on the downside.

This will undoubtedly have some knock on effect here, both in reduced buying of construction materials like aggregate, to less fish and transit goods, even overflight fees must be down. And less side-stepping tourists to nip across the border.

But all things considered, HE Mackie can rightly feel pretty good right now. Moodys have just given us a good sovereign rating and said some very nice things. The banks were not heavily into CDOs. And our currency link to the dollar has assisted greatly. The fiscal maintenance plus credit loosening is working. All local investor construction projects in and around Muscat are going ahead, and taking advantage of the cheap prices for cement and steel.

[Aside: although I'm reliably informed that work on the Minister of Tourism's new house extension in Qurm has been in suspension for some time. Strange. ]

Oman is definitely a great place to weather the storm. But hold on tight. A cold wind is howling, and the savings and low borrowing will only last so long. HE still needs an oil price uptick to >$60 by end 2010.

Oman's Real Estate - what's the status?

No real news at all yesterday, at least not in Oman, apart from the visit with HM and the Omani Military of General Petreaus, now US Military head of the Middle East theatre. Totally dulls-ville.

Meanwhile, the impact of the 'global liquidity crisis' continues to reach inexorably towards Oman. The problems:
- Low oil prices lately (and most importantly lower than budgeted by Government for next year),
- Falling demand & low global prices for exports such as copper and aggregate, Aluminium and refined oil products, shipping, LNG, methanol,
- Likely reduced demand from high paying tourists (although that is yet to be confirmed, I think it's likely that intense competition will take place between classical tourist destinations, like Far East, Mediterranean, Caribbean, and ME, lowering profit margins and growth).
- The acknowledged significant reduction in expected future growth, which effects lower NPV for businesses
- Low share prices

On the upside, import prices are plummeting, helped by the stronger dollar, for steel, cement, food, cars, heavy machinery, and oil field services. International contractors will be searching for deals, and skilled expats for jobs. The Free Trade Agreement with the US might help too. Bulk shipping charges have collapsed, making transportation of imports and exports much cheaper (~80% cheaper).

One big question at present is:
what is the status and implications for real estate developments in Oman, especially given the continuing and surprisingly rapid meltdown of the Dubai property bubble?
Obviously, the news is going to be biased to the downside in the short to medium term for all real estate in Oman, but especially the high-end, away from industry, semi-tourism mega-projects.

In fact, the whole "buy off-plan" business model is probably busted. The idea was that by buying off-plan (ie not yet built), purchasers took on some of the development's risk, significantly lowering financing costs and developer risk, enabling them to - in exchange - get a lower than market purchasing price, locked in, and effectively buying a cheaper call option on the future real estate market, which had been so buoyant for so long as to seem a one-way bet. At the Wave recently, people were even fighting for the right just to make a deposit. The greed was palpable.

If I had a house being built right now, I'd be very careful to make sure original specifications are being adhered to. The temptation to cut costs on these pre-partially paid deals must be hard to resist. Contractual minimum will be the rule, and any variations sharply priced, so make sure you have regular independent inspections during construction. I wouldn't rely on the local building inspector to make sure you got the right tiles, kitchen, wall thickness, fittings, water system, etc etc.

And if you haven't yet bought an off plan Middle East house, ...... why, pat your self on the back for a fantastic investment decision successfully completed!! Your foresight has saved you 100,000s of thousands of dollars!

Of course, the bottom line for Oman will mean in the short term, less investment spending (and the total being put on hold right now must be at least 6 billion rials worth, over several years mind you). That's a big hit on the economy, especially when then taking account of the multiplier effect on all the money invested, plus the jobs for people, especially Omanis, that will at best be delayed... Not good. No wonder Galfar shares are down.

As for the specific developments, what's the latest?
The Wave.
Always the most organised and professional of the lot, The Wave has had the advantage of getting in early and having thus completed many houses that are paid for (phase 1), and probably getting reasonable contracts for construction. Secondary sales have collapsed, but perhaps mainly because the prices being asked are still overinflated compared to what they originally cost just a few years ago, and this is exposing those who bought only to sell on. The Wave have probably locked in decent project finance too from Bank Muscat. I don't have any detailed intel yet on their inner-financing status, but as the Wave is owned primarily by the Government of Oman and so much cost is sunk, they will survive. A problem in the short-term would be if houses already sold/constructed come onto the market at lower prices than are profitable for subsequent new phases. They may take this opportunity to renegotiate contracts for construction & fitting, and share the pain a little. Long term I think the Wave will be fine, if you want to live in an expensive house on the Muscat Airport flight path surrounded by construction for several years to come with little upside in investment value. At least you can commute to Muscat to work.

Muscat Hills
The villa/golf course project near Boucher that is already well underway. Recently relaunched, and allegedly refinanced by HM himself, it seems to be progressing too. (Only after purchasers threatened legal action over an attempt by developers to extract more cash from them post-contract, allegedly after someone embezzeled a load of the project cash). As long as they have now locked down construction and financing (which they should have done ages ago) this project should complete OK, although the market prices will might mean a short-term loss on paper for the purchasers and not much profit for the developers. Again, at least you can commute easily.

OHI Qurm/Burhan Heights/Shanfari villas redevelopment
Announced just before the shit hit the fan, and with demolition started of the old houses, this project seems to be in trouble. The sales office is substandard and amateurish, no deal has been concluded on the proposed 4**** hotel, and talk is that the project will be suspended. If you have shit-loads of cash right now, and perhaps own a construction company, this would make a killer purchase right now, BTW. Galfar Developments anyone?

Blue City
Ah, Blue City. If you don't know the history, you've got some reading to do. IMHO, this project was in big trouble even before the crisis. Right now, Blue City is in the worst position for a real estate development to find themselves when cash is tight, with a lot of their seed capital sunk or committed, and the likelihood of further off-plan sales (needed to finance construction) now much lower, if not zero.

The borrowed money (via $925 million in bonds) has been substantially spent on a complete re-design, salaries, commissions to the financiers, marketing junkets around the world, advertising, plus building the construction camp and bulldozing some roads. The planned 27 hole golf course had already been pared back to 18 holes, and sales are well below target and apparently in breach of bond covenants. The construction managing company Bovis has quit, claiming non-payment. Lots of churn in other contractors and in senior management. The shareholders [AAJH and Cyclone LLC] continue to battle in the courts for ownership, and as a result of that dispute I'm not aware of an official Board meeting being held lately, thus allowing the development company executive to run independently of formal company Governance. The mega-hospital/medical village sponsers have pulled out. There has always been a lot of silly gossip alleging fishy dealings with money being siphoned off and even reports of a $1 miilion hush payment made to the ex-CEO, all of which I have no evidence for and is almost certainly not true. Not at all.

There has been a long and rather tedious exchange of essentially fact free opinions over the past few days on Sue Hutton's News Briefs Oman site, Blue City Comments, with someone calling themselves 'stakeholder' trying to say everything is fine, despite all the available facts, insider comments and common sense showing is it far from fine. He/She has been commenting on an earlier post here too.

I expect this project will be significantly scaled back to cut losses and rescue what they can. Bonds will be renegotiated, and the project will in the immediate short term turn into a smaller villa-style luxury hotel development combined with a few villas, golf course and an apartment block or two. I predict the principals will now use the crisis as an excuse for the greater project's collapse and seek Government support to fill all the holes. They will claim if it wasn't for the crisis that everything was fine and certainly nothing wrong with the original concept or management. Which I guess if you snort enough PCP-laced Andean marching powder and/or have your own money invested in the project might seem believable.

Salaam Yeti
Now that the village is moved, land reclaimed, mountains leveled and the breakwater built, those in the know say the project is on indefinite hold for now as things continue to develop in Dubai. Developer Sama Dubai have apparently placed all their projects on hold while they reevaluate, but I would expect, given the early stage of the development, that Dubai may have priority in the short-term. However, in the medium term, who knows, perhaps Oman will become a safer bet. Yeti was tipped by some Senior real estate contacts of mine some time ago as 'the one to buy' because of its proximity to Muscat, Shangri La type setting, and the significantly higher total area/number of houses ratio compared to the Wave.

Sama Dubai, which is part of the Dubai Holding conglomerate owned by Sheikh Mohammed bin Rashid Al Maktoum, Dubai’s ruler, has had a few problems of late, with 4 senior executives arrested in the UAE Real Estate corruption probes.


A'Sifa
Unknown.

Omagine
The development company recently claimed (see prev post) "...There is at any rate no shortage of qualified and willing investors in Oman and its surrounding countries (the "Gulf Region") who are ready, willing and able to invest in the Project Company ...money simply isn't an issue..."

I guess we'll see! They claim to have $110 mln in the kitty, less than 10% of the projected project cost, but as no significant capital has been sunk in the ground, and they seem to be using a recycled design, they should have enough cash to wait a few years.

PDO Camp Redevelopment by MoT
The timing of the crisis, and the contraints of both project financing, real estate market, hotel demand and Government budgets, will almost certainly mean this project will be deferred indefinitely until conditions improve. PDO's residents have gotten a stay of execution for quite some time.

Other small retail/residence developments in Muscat: Qurm Wadi, Ghubra, ...
Construction is so far along that if local bank support continues to be available, these should be completed OK, as they are relatively small developments, aimed at the local market which is still significant. Whether they will sell, and at what price, is a different matter. But cashed up local big boys may well be in for a few bargains.

Dubai Property meltdown commences...

In a worrying sign for Dubai and perhaps for other nearby countries with big real estate ambitions, London and Dubai-based property wealth manager MiNC, developer of Prodigy 1 in Dubai's Jumeirah Village South, with almost 80% of the money collected up front on a property development that is underway, is now effectively blackmailing purchasers to either immediately pay an extra AED313,000, almost doubing the original price to AED688,000, or they won't finish the building and purchasers will loose 30% of what they've already paid. Ouch.

Photo: Generic Dubai hi-rise buildings now



Photo: Is this Dubai's hi-rise future?

Wow. The Developers blame the situation on all sorts of things, excluding their own project management incompetence and greed. IE: Apparently 2 banks have withdrawn project financing that they had agreed to provide. Oh really? Without penalty? I guess the original credit line agreement was drawn up on the back of a swarma wrapper. Oh, and the property was handed over late, and costs have gone up, and the cat ate his homework, and its not fair because they were supposed to be the ones coining serious money, not loosing it. So meanwhile they've stopped paying the builder, who naturally has now stopped building. And there is no cash.

This is just a taste of what is to come. The banks have simply stopped providing finance, to builders, developers and to most purchasers. In fact, apparently UAE banks now won't even give you a credit card if you work for a developer. The problems may well destroy the whole business model throughout the region, of selling off plan and funding construction through pre-payments, and get us back to where it actually takes a company with some serious financial muscle and project mamangement skills to do a big development. In the current situation, anyone buying 'off plan' IMHO need their head examined.

Its also nice to see some of these young, Expat (esp British), and terribly loud and annoying Dubai real estate swindlers getting laid off too. Getting space at the bar in the pubs in the Irish Village and Jumeirah may soon be a little easier.

I wonder when we'll start seeing similar letters from some of Oman's real estate developments... (In fact, a bond & Trading Update from Blue City is about due I seem to recall...)

Here's the letter. Note how long it takes to get to the important part! See www.propertycommunity.com/forum for the full discussion.

Letter
RE: Prodigy 1/Jumeirah Executive, Jumeirah Village South
Given the current economic climate and the impact on the property sector, including MiNC, I am writing to provide an update on our strategy and plans going forward in relation to the Prodigy 1 building. The purpose of this letter is to highlight the issues we face in completing this building and proposed solutions. We need your assistance in achieving these plans.

As you will be aware, we have been experiencing delays in completing this project. I would like to assure you that the successful completion of this project has been, and remains, our most critical business priority. We are absolutely committed to making sure we deliver on our promise. However, we have faced a number of challenges since the start of the project, and we are being further challenged by the fall-out from the economic crisis in the region. There follows a summary of the challenges and our proposal for overcoming these:
• We launched the Prodigy 1 project in October 2006, following the purchase of land from Nakheel. Having been promised immediate hand-over of the land, Nakheel actually delivered the land for construction in May 2008. Even though the apartments in Prodigy 1 had substantially been sold, the delay in receiving the land from Nakheel had a significant negative impact on the project;
• Construction prices doubled during the time we waited for the land to be handed over, with a significant negative effect on the viability of the project;
• We also witnessed a doubling of construction-related professional fees and a large increase in government-imposed costs during this period;
• The introduction of new regulations by the Government of Dubai, although welcome in concept, made it extremely difficult for us to proceed with the project. This was because our financial model was different to that imposed by the Government of Dubai; whereas we had envisaged funding the construction of Prodigy 1 with cash flow from the overall Prodigy project cash flow (six buildings), this was no longer allowed;
• The arrival of the global financial crisis has had a severe impact on the monies MiNC has available to build Prodigy 1. We are no longer able to subsidise construction of the project; the project needs to be self-funded as originally intended;
• Additionally, the liquidity squeeze in local banks has recently caused two of our local banks to withdraw project finance for Prodigy 1, having originally agreed to provide this funding.

The following is the status of the project as a result of the above:
• The vast majority of apartments in the project have been sold.
• The project is no longer financially viable; costs have increased to the extent that MiNC would make a significant and material loss if it were to build this project. MiNC can no longer afford to subsidise this loss;
• Construction had commenced on the project; however, progress has been halted, as the contractor has not been paid due to the withdrawal of project funding by the bank. The project has a severe cash flow shortage.

In short the project has stalled and we do not see it progressing any further in the current economic climate unless we are able to inject cash in to this project as a matter of urgency. We are determined to see this project through to the finish despite these uncontrollable events.

Our proposal
In order to ensure that we are able to construct the Prodigy 1 building and deliver your unit to you, we need you to pay an additional AED 313,000 for your apartment. Given current trading conditions, we believe that this is the only viable option available. We will need all of this additional payment up-front in order to continue with construction. The other installments will remain as per the original schedule.
Your new price would be AED 688,000. This equates to AED 1,000 per square foot.
In exchange for this, we will be able to instruct our contractors to re-commence construction of this building immediately. Clearly this will be dependent on all buyers accepting this offer, otherwise your money will not be utilised. We recognise that our valued customers will not be pleased with an increase in the cost of the unit. We hope that some of your displeasure will be mitigated by the fact that the ultimate price you will have paid for your unit will ultimately be significantly below market value at time of completion. We estimate that your revised cost will be at least 25% below market value. We also believe that rental yields will remain firm at 8-10% of current values and much higher than this on purchase price. Should you agree to our proposal, we will of course increase our rental guarantee to 8% of your increased purchase price.

Summary
I would like to assure you that we have seriously considered every option to arrive at the proposal presented above, and that we sincerely regret the changes to our original agreement.

The current economic climate and the impact on the property sector are certainly 'unique' and thus require 'unique' thinking, analysis and action. The proposal outlined above is something that MiNC would never consider under normal circumstances. Events outside of our control have forced us to make difficult decisions such as these. In light of the current market dynamics in Dubai, we believe that this is a positive step in achieving a successful completion of this project. We hope that you feel the same way, remaining enthusiastic and positive in achieving this goal with us.

We sincerely apologise for the inconvenience this communication and subsequent actions required of you have caused.

To reiterate my sentiments above, I and everyone at MiNC is absolutely committed to building Prodigy 1 so that we can deliver your unit no later than June 2010. We believe that our proposed course of action will ensure we meet this target. Failing this, we fear that the project will be suspended, possibly permanently.
A sales representative from our office will be contacting you imminently to discuss this further and address any concerns you may have. In the meantime, if you have any questions in regard to the above, please do not hesitate to contact:
Sales Customer Service
Mr. Muawia Khalil | Tel: +971 50 453 8652 Ms. Pooja Lal | Tel: +971 50 658 7667
If you agree to the proposal outlined above, could you please signify your acceptance by signing and dating the Appendix attached, returning it to this office by fax or scanned copy via email at your earliest possible convenience. I look forward to providing you more updates following the positive outcome of this proposal.

Yours sincerely,
Haroon Mahmood
Chief Executive Officer, Dubai