dubai world -recession
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‘Dubai World’ Recession-B.V.Raghunandan, SVS College, Bantwal
Department of Business Administration,
St.Joseph’s Engineering College, Vamanjoor
December 8, 2009
Dubai- Institutional Profile
• Dubai Holdings- Private Investment arm of Sheik Mohammed bin Rashid al Maktoum
• Dubai Holdings has four divisions: Property, Leisure and Hotels, Investments and Free Zones including tax-free business parks
• Dubai World-Property, Leisure and Hotels
• Investment Corporation of Dubai-Supervisory Body of all Government Projects
‘Dubai World’-Recession
• Dubai World –the Real Estate Investment Arm and Nakheel is a subsidiary for creating islands like Palm Island
• Source of Revenue: Crude Oil Export, Tourism and Trading Margins
• Projects: Infrastructure, Lavish Hotels, Reclaiming Land, Race Horses in the USA
• Huge Investment in Real Estate Development
Rationale for the New Projects
• Dwindling Oil Resources
• Expensive Life Styles of Royal Families
• Need for Developing Alternate Sources of Revenue
• Developing Tourism and Duty Free Shops
Nature of Projects
• Iconic Projects
• Targeted at Most Affluent Customers
• Built for Royalty
• Every Project is Showcased to the World
• Projects Executed to Meet the Deadlines
• International Technical Expertise
• Finance through International Borrowings
General Defects of the Projects
• Defective Location
• Unnecessary Grandness
• Too Many Projects in Succession
• Instability in Tourism Industry
• Redoing
• Using Expensive Consultancy
Projects
Palm Island
Cost Nightmare
• Huge Construction Cost
• Very High Fixed Cost
• Unreachable Break Even Point
• Wastage Through Redoing
• Huge Cost of the Land (In the sea)
• Fluctuating Fortunes
• Expensive Consultants
Marketing Myopia
• Class Marketing-Unstable
• International Customers-Choice is International
• Real Estate Boom becomes a Bubble Quickly
• Single Product-Tourism; No Possibility of Product Diversification
• Political Instability of Middle East Ingrained in the minds of International Customers
Finance Debacle
• Presence of a Huge level of Debt leading to High Debt Equity Ratio
• Contrary to Sharia Principle frowning upon lending for an interest
• Unsteady Revenue
• Hasty Completion of Too many Projects without waiting for revenue from the Previous Projects
• No proper Project Evaluation (not using Investment Bankers)
Impact
• Dubai is not a Big Trading Partner of the World as the US is
• Crude Oil Market is Bullish
• Projects are being Halted
• Abu Dhabi may Bail out Dubai
• Non Real Estate Activity continues
• Debt is likely to be rescheduled
• No Possibility of Recession
Impact on India
• Regional Bias
• Kerala, Tamil Nadu and Dakshina Kannada District of Karnataka
• Employee Profile Bias
• White Collar Jobs may not be affected
• Skilled Workers and Semi-skilled and Non-Skilled workers in the Real Estate may be affected
• Indian Real Estate is booming
Comments of International Bankers
• Michael Geoghegan, HSBC Group chief executive “ I am confident that the leadership of Dubai and the UAE will overcome any short-term issues they face, which appear to have been somewhat sensationalised, and continue to lay the foundations for sustainable growth".
Comments of International Bankers
• World Bank Group President Robert Zoellick, “the Dubai debt crisis is manageable and it would not affect India”.
Centre for Development Studies
• Study of CDS for Department of Non-Resident Keralite Affairs reveals
-25 lakh NRIs from Kerala
- 37000 to 60,000 lost their jobs
-Of the remaining,58% remained in the same employment
-42% moved to another sector of employment
-ready employment in Indian Infrastructure Industry
Blown-Out Press Coverage
• Western Media
• Action of Short-sellers
• Increasing the Terms of Restructuring
• Increasing the Premium on Credit Default Swaps
• Creating a dampening effect on the Commodities market particularly on Gold and Crude Oil Markets
THANK YOU
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