Dubai World -Recession

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The debt crisis in Dubai

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Dubai World -Recession

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

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