‘Obviously an agreement has been reached between the two ruling families.’

ALEC HOGG: Earlier today I asked Dr Christopher Davidson what he thought of Dubai's full repayment of that $3.5bn loan that fell due today.

"CHRISTOPHER DAVIDSON: This is extremely welcome news for Dubai, Abu Dhabi and the whole of the UAE federation. It's great news for the international investor community as well that was worried they were going to be short-changed if Dubai wasn't going to repay its ... in the next few weeks. Abu Dhabi faced a difficult decision with this one, but thankfully put the overall UAE international brand above all else.

"ALEC HOGG: It was interesting that there was so much speculation in the international media that Dubai would be negotiating with creditors to pay maybe 70¢ in the dollar on this sukuk, as it's called. Perhaps you could give us a little bit of background and explain what a sukuk is, and why there would be that kind of speculation?

"CHRISTOPHER DAVIDSON: Well, a sukuk is an Islamic bond. It's shariah-compliant, so the interest is charged in a different way to avoid accusations of usury that might be associated with that Western-style bond. The big problem was that $3.5-odd sukuk, the largest that's ever been issued in the Islamic banking world, was due for repayment today. And if Dubai didn't pay that within the next two weeks, then it would be classed as a default, which would have ramifications for the entire Islamic banking industry, let alone Dubai. There was speculation that Dubai might try and restructure the debt - as you mention, take it down to just 70¢ in the dollar - but the ratings agencies and the other observers were saying that even any attempt to restructure along those lines would be viewed as a default.

"ALEC HOGG: If you look back now at the timing of the debt standstill from Dubai, was there method in that apparent madness?

"CHRISTOPHER DAVIDSON: Yes, I think so. I think Abu Dhabi was reluctant, to begin with, to come in and to bail out Dubai with a completely blank cheque, so that we had this very difficult last few weeks, where certainly there have been in-depth political wranglings going on behind the scenes, or in this case behind the palace doors. We may never know the whole story of that, because this is traditional politics in action and obviously an agreement has been reached between the two ruling families. But it seems good news so far. Dubai with its statement today appears to have committed to a very strong road map towards good governance and full transparency from now on.

"ALEC HOGG: Is it likely, then, that international investors in Dubai securities, bonds and perhaps other loans won't have to take a haircut?

"CHRISTOPHER DAVIDSON: Well, it seems that payments will be made now. This is $10bn, not just to refinance the sukuk bond, but to pay off the contractors that were worried they were going to have to accept a reduction in their fees. So all seems to be well. The big question, though, is: will people want to do business with Dubai specifically in future or not?

"ALEC HOGG: What do you think of that?

"CHRISTOPHER DAVIDSON: Well, I think it'll all have to be repositioned in the United Arab Emirates international brand now. I think the days of doing business with Dubai and doing business with Abu Dhabi will be over.

"ALEC HOGG: And how are you reading it into the future? Perhaps if we could start on the Dubai real estate market. Is that likely to come under a lot of pressure?

"CHRISTOPHER DAVIDSON: It will remain under pressure, unfortunately. There's this horrendous over-supply and even more properties that are due to come to the market soon, not just residential but commercial real estate as well. This to my mind shows no sign of bottoming just yet, and probably will get to 60% or 70% off the prices we were seeing in 2007. Abu Dhabi should be OK. It should be a very buoyant real-estate market within the next year or so.

"ALEC HOGG: So it's almost as if the focus will switch from Dubai just up the road a little?

"CHRISTOPHER DAVIDSON: Yes, I think there's already been a population shift from one to the other. A lot of jobs have been created in Abu Dhabi that have been lost in Dubai. We are seeing Western sections of the city of Dubai, which is closest to Abu Dhabi, become something of a commuter dormitory for people now working in Abu Dhabi, which has emerged as the real capital of the United Arab Emirates now.

"ALEC HOGG: Christopher, what about other apparent extravagances, like the horse-racing, where Dubai has got a $10m horse race, the richest in the world, and perhaps the golf courses that you see in Dubai that are irrigated by desalinated water, which has got to be the most expensive system in the world? Do you think those will come under some kind of threat?

"CHRISTOPHER DAVIDSON: Yes, I think there'll be far greater scrutiny now of a prestige projects or personal projects like these. I would imagine everything that's been begun will be completed, but new projects will have to turn into a much more intensive spotlight. There's a question here of personal prestige for the ruling family. It was rather telling that throughout the crisis the only major project in the world's ...the giant horse-race stadium, Maydan.'

ALEC HOGG: Isn't that interesting, David? The royal family of Dubai might be under enormous pressure, but they are still building their horse-racing stadium.

DAVID SHAPIRO: It's close to your heart.

ALEC HOGG: Of course it is. It's extremely close to my heart. There were a lot of people in South Africa who were worried. Our horses do extremely well in Dubai. They take on race horses from all over the world, and often win. And we have one of the best trainers in Dubai, Mike de Kock, who goes up there. There was a lot of concern with this fallout that Dubai racing would also fall away but, as he makes the point...

DAVID SHAPIRO: Have you seen any prices come down for a thoroughbred, or...

ALEC HOGG: Oh, they've been down all over the world.

DAVID SHAPIRO: What do you call it?

ALEC HOGG: Bloodstock. Yes, they have, they have fallen all over the world, but it was a bit of a bubble. But now - it's just to let you know that, as he says, the cranes have stopped everywhere else except in the new horse-racing stadium. Quite interesting.

• Subscribe to a daily email of transcripts from Moneyweb Radio - click here

The SAfm Market Update with Moneyweb is broadcast on SAfm 104-107fm, weekdays at 18:00 to 18:30.

COMMENTS

  responses to this article

View disclaimer

ADD YOUR COMMENT

Name:
Surname:
Email:
Subject:
Comment:

if (theForm['attribute_1327'].value == '' || theForm['attribute_1327'].value == '0') { ccs.ugc.capture336192.addValidationError(336192,'Comment:',1327, 'is mandatory') };

View disclaimer