Dubai disclosure: Dubai’s claim that its call for a debt standstill at Dubai World was “carefully planned” sounds like a bad joke. The emirate may need to restructure the $59 billion debts of its wholly-owned holding company. But the way it has communicated its intended default is appaling. In its latest elliptical statement, Dubai also says that the move was a sensible business decision. Given that its reputation will suffer long-term damage, this is far from clear.
One element of careful planning is effective communication. This is especially so for the modern services economy that Dubai aspires to be. But the emirate’s basic instinct is to guard financial information jealously. As a result, outside estimates of Dubai World’s assets, liabilities and cash flows can only be rough and ready.
If Dubai wanted to keep international investors on its side, it should have spelt out the size of its financial woes and what it planned to do about them. Instead, it issued a very short statement on the eve of America’s Thanksgiving holiday and just when the Muslim world was about to depart on its Eid holiday.
On Thursday evening, the grandly-named Supreme Fiscal Committee issued a further statement – which threw little extra light on the emirate’s intentions. It’s unclear, for example, whether it plans merely to reschedule the debts or impose haircuts. Given the information vacuum, investors are assuming the worst.
One thing the Supreme Fiscal Committee did say was that this was a sensible business decision. The implication is that it doesn’t make sense to throw good money after bad. Maybe Dubai had no choice. But the emirate can’t view Dubai World – which has been the vehicle for prestige projects backed by its ruler – as a limited liability company that it can cut loose without repercussions.
There may be no explicit guarantee of its debts. But the emirate’s reputation and that of Dubai World are woven together. Trust has been badly damaged. And the message that it is ok to default on your debts doesn’t sit easily with Dubai’s ambitions to be the financial hub of its time zone.
