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Can Dubai afford not to?

Can Dubai afford not to?

Though some predict a quick economic recovery, times are still tough; Kipp wonders if Dubai can afford to hold onto its assets for a better price down the line.

October 27, 2010 3:15 by

A senior official from the world’s biggest private equity company Carlyle Group has said that Dubai should not sell any of its assets at distressed prices because the economy is expected to make a recovery soon. Kipp asks the question: can Dubai afford not to sell its assets, no matter how distressed the price?

A few weeks ago we reported that some analysts expected Dubai to have to sell some of its key assets to meet debt obligations, including the likes of Jebel Ali Free Zone and stakes in the Atlantis Hotel and MGM International. “There is little doubt that the government would have to sell some of its assets to raise funds,” said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh at the time.

But now some are more optimistic. Carlyle co-founder David Ruenstein told reporters at the World Economic Forum in Marrakesh, Morocco, that his company and others are considering acquiring assets owned by Dubai. Bloomberg has quoted Ruenstein as saying, “We have looked at a number of those assets as have a lot of other private equity people. Many assets owned by Dubai’s investment companies have not been sold because there’s an increasing view that the economy is coming back, the value of these properties are coming back, there hasn’t been a compelling need to sell at a distressed price.”

Ruenstein’s comments come amidst further good news: reports announce that Dubai World has achieved full support from its creditors. Though Dubai World chief Aidan Birkett resigned earlier this month, symbolizing the completion of all deals with creditors, in actual fact one creditor remained unwilling to agree to the deal. It was an issue that was only resolved when the creditor was bought out; Aurelius Capital Management sold $5 million of Dubai World’s outstanding liabilities to Deutsche Bank, thus ensuring full backing for Dubai World’s $25 billion credit restructuring deal. As the most indebted company in the Emirate, Dubai World has become a bell weather for the wider economy and government finances as a whole.

Though things may be looking rosy for Dubai World, and the UAE economy has also received positive news this week from the IMF (which predicts 2010 figures will show a return to growth), fears of a double dip world recession could be one more obstacle Dubai may have to overcome. The National reports that members of the business travel industry believe fear of another global recession is slowing down recovery in the business tourism sector. Speaking at the Business Travel Show in Dubai, the president of the Association of Corporate Travel Executives (ACTE) said, “There are still concerns that we will be facing another recession (…) The overall trend is encouraging without being exciting.”

Cautious tones, then, but there are other reasons Dubai doesn’t have to be gloomy—according to the recent Legatum Prosperity Index released this week, the UAE comes in at the 30th most prosperous country, boasting of the 24th position for its entrepreneurship and opportunity and 30th for the economy. And according to Transparency International, a Berlin based monitoring orgnisation, the UAE remains one of the most investment friendly countries in the region, scoring 6.3 out of ten on their ranking, beaten only by Qatar at 7.7. Granted these noteworthy rankings extend to the whole of the UAE, including Dubai’s richer neighbor Abu Dhabi—but the optimist in Kipp thinks they can positively affect investment in the emirate.

Overall it seems there are finally more positive signs in the economy than negative – at least for now. Perhaps Dubai should hold on to those assets a little longer after all.

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