Dubai scrambles to restore confidence

Dubai scrambled to restore its reputation last Thursday, assuring investors that major property and leisure projects would go ahead and dispatching two top officials on a public relations drive to Washington.

Dubai raised fears of a second round to the global financial crisis on November 25 when it asked for a standstill on $26 billion of debt linked to flagship conglomerate Dubai World and its property units Nakheel and Limitless.

Last week, Dubai's wealthier neighbour and fellow member of the United Arab Emirates, Abu Dhabi, lent it $10 billion to meet Dubai World's obligations until the end of April and stave off a bond default by Nakheel, developer of its palm-shaped islands.

But confidence remains shaky, with syndicated lending in the Middle East at a five-year low, and bankers say Dubai companies will now need explicit government support to borrow abroad.

In a bid to restore the reputation of the Gulf business hub famous for extravagant developments such as the world's tallest building, the US Treasury said two senior Dubai officials met Treasury Secretary Timothy Geithner last Thursday to discuss the debt crisis.

Sheikh Ahmed bin Saeed al-Maktoum, chairman of Dubai's Supreme Fiscal Committee, and Mohammed al-Shaibani, chief executive of the Investment Corporation Dubai, also met officials in London last Wednesday, a government source said.

Abu Dhabi's loan has alleviated immediate concerns, but banks remain uneasy about the billions of dollars they lent to fuel Dubai's development boom on the assumption the emirate or the oil-rich federal government would back the debt.

"The headline risk remains, as Dubai World is still involved in a fluid process, so it is still key to proceed the dialogue with international investors," said Ali Khan, managing director and head of brokerage at Arqaam Capital.

Dubai's government may also repay outstanding 2010 and 2011 Islamic bonds issued by Nakheel and provide further funds to Dubai World, the Financial Times said.

But some analysts said it needed to take concrete steps to improve transparency and communication after leaving investors in the dark about the fate of their money for three weeks.

"We really need to see more practical implementations: new regulations should be adopted ... decisions on legal issues and regulation should be cleared and up to international standards," said Samer al-Jaouni, General Manager of Middle East Financial Brokerage Co.

Dubai's developers said their projects would still go ahead.