DUBAI, May 24, (Agencies): Dubai officials are outlining plans for financial reforms in the wake of the emirate’s credit crisis.
The governor of the Dubai International Financial Center, a state-run banking hub, said Monday the United Arab Emirates federation is putting in place a “wide-ranging program” aimed at addressing shortcomings in the country’s financial system.
Growth
“Although we expect a return to high economic growth, it is critical that we urgently address the deeper risks and challenges that the economic crisis has revealed,” Ahmed Humaid al-Tayer told a banking forum in Dubai.
His comments came hours after the head of Dubai’s supreme fiscal committee, Sheik Ahmed bin Saeed Al Maktoum, said the Emirates plans to implement a debt law and coordinating office to manage borrowing by government-related companies.
Dubai will create a similar office to coordinate debt decision-making on a local level, he said.
Debt problems with some of Dubai’s state-linked firms, particularly the city-state’s Dubai World conglomerate, sparked broader fears about the health of regional economies and the ability of government borrowers to repay their bills. Dubai World’s credit crisis also renewed questions about poor transparency in the oil-rich Arab Gulf.
Dubai is one of seven semiautonomous states that make up the UAE federation. Unlike its wealthier neighbor Abu Dhabi, which hosts the country’s capital, Dubai generates only a small fraction of its revenue from oil.
Sheik Ahmed, a top aide and uncle of Dubai’s hereditary ruler, said the changes he outlined Sunday evening were among a number of “urgent steps” being taken on a federal level to address gaps in the country’s legal and regulatory framework.
Insolvency
Emirati officials are also planning to update the country’s largely untested insolvency laws, which analysts have cited as a cause for concern.
“A clear framework for the financial restructuring and reorganization of companies, based on international principles, is being put in place,” Sheik Ahmed said.
Dubai World last week announced it had won support for a $23.5 billion restructuring plan from leading lenders after months of closed-door wrangling. It says it still needs to persuade its remaining financial creditors to sign on to the plan.
Debt-rating agency Moody’s Investors Service said Monday it believes there is a “high likelihood” the deal will go through.
“Acceptance by bank lenders would go a long way towards ... restoring confidence in Dubai’s financial sector,” Moody’s analyst John Tofarides said. He cautioned that other state companies might also still need to rework their debts, however.
Dubai World’s Nakheel property unit, famous for building islands in the shape of palm trees off Dubai’s coast, is engaged in separate negotiations with contractors over past-due debts. It says suppliers representing more than half of its unpaid bills have signed on to a plan to be repaid with a combination of cash and equity.
The International Monetary Fund estimates Dubai is shouldering as much as $109 billion in debt, suggesting the emirate’s credit problems are far from over.
“I wouldn’t rule out other large and small entities including banks, holding companies, etc. to pursue similar debt restructuring over (the) next 24 months,” Middle East analyst Saud Masud of Swiss bank UBS said in a recent interview.
Daniel Doctoroff, the president of Bloomberg LP and former deputy mayor of New York for economic development and rebuilding, said that giving expatriates in Dubai a path to citizenship is key for it to be globally competitive.
“In order (for Dubai) to compete on a global scale, a path to citizenship is critical” for expatriates here, Doctoroff told the conference.
“At present foreigners are very welcome — they can own property and live here freely,” he said.
Stringent
“But they cannot be on the path to citizenship. With such stringent residency requirements, it is difficult to get expatriates truly invested in Dubai,” he added.
“You have to continue to attract talent for the long-term — that is the critical step ... toward building a financial centre,” he said.
Doctoroff praised Dubai’s infrastructure, saying it gives the emirate an advantage over other would-be financial hubs.
“Given what has happened in the financial and real estate markets ... investment on such a grand scale in infrastructure projects is not likely to be repeatable,” he said.
“And that creates an advantage in that other prospective financial centres will have to play a big game of catch-up in order to achieve parity.”