I have been monitoring some construction stocks for some time particularly Gamuda seeing that the 10th Malaysia Plan is coming up in 2011 and some of these are in line for big jobs. I noticed a sudden drop in the price of Gamuda last Friday and concluded that some people were selling for reasons best known to themselves and maybe it was time for me to grab the stock at a bargain. Only later did I find out that this stock has exposure in Dubai whose Emirate had announced on Wednesday 26 Nov for loan repayment freeze for up to six months. This means that the government-owned company cannot pay its loan and is asking its creditors for a reprieve till at least May 2010!
The bad thing about the announcement was the timing. It was just before the long Eid Adha holiday in the Emirate, which left a lot of investors across the world wondering what's next.Some comments included that the Dubai financial crisis would not affect the rest of the world, those affected are mostly banking stocks like the Royal Bank of Scotland , HSBC and Standard Chartered which provide loans to Dubai World an investment arm of the government of Dubai through Nakheel , its real estate conglomerate famous for building the artificial palm-shaped islands. Dubai has wanted to be the financial capital like London and New York but with the crisis, her dream may well remain a dream.
During the boom years Dubai went virtually berserk with constructions. They were trying to attract foreign investors to use Dubai as their destination. In fact many wealthy people including celebrities have bought properties there. However with the credit crunch and global financial crisis, many houses are not sold and projects half completed then abandoned with no adequate fund coming in. The problem was known for some time but the Sultan gave the impression that this was no big deal.
Some analysts noted that in the past Dubai was always bailed out by its rich neighbor Abu Dhabi, after all the two emirates are related through marriage. If that is the case then, the debacle would only be temporary but it is strange why this solution was not pursued earlier and avoid the market panic? Was it because Abu Dhabi is sick of bailing out her high-spending brother? Whatever it is the Sultan had said that he took considerations of all these issues and effects on the financial world before making the announcement.
Night golfing with the Jumeirah Towers in the background- playground for the super wealthy
Affected investors are praying that Dubai would not default on the loans repayment , amounting to some USD 59 billion so as to avoid the domino effect that might well cause the long-expected correction in markets around the world which have made gains well above the actual economic recovery on the ground. since March 2009. Obviously this debacle sent shivers to all the stock markets around the world. Investors will eagerly wait for more development on this by the Emirate and take it from there come this Monday 30 November.
Who would have thought this Emirate would face such a financial crisis? Actually Dubai is the poorest among the seven emirates, it is compensating by taking out loans and creating services infrastructures and some of the projects are really way too pretentious, overambitious (including the self-proclaimed the only seven-star hotel in the world!) and it did not factor in the world financial crisis in October 2008 as many of the projects were started well before that.
Dubai Atlantis Hotel- like in DisneyWorldHowever wealthy you are if you spend like there is no tomorrow, you will eventually suffer from your extravagance. Unfortunately in this case, other people, the investors are also affected through loss of their investment either in value or the whole lot.
It is interesting to note that the tagline in Dubai World website is "Where the Sun Never Sets"... sounds too arrogant to me. And the German word schadenfreude comes to mind.
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2 comments:
Dubai has many mega malls. our biggest mega mall - Mid Valley is consider small to them. But I heard that their Mega Malls have fewer visitors and mostly of them are foreigners (hmm.. They are foreign workers, not tourists).
You are absolutely right about the foreign workers outnumbering their own people.
They are also selective in their treatment of foreigners. They look down on people from our part of the world because so many of them work in low-paying jobs.
I prefer visiting malls in Singapore and London any time.
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