Dear rss free blog,
Don’t buy Dubai. Normally after a market panic my speculative juices get flowing. But not over Dubai.
Its overdone economic panic was fed by the loan repayment holiday announced just as the region closed down for Eid. This came a week after the ruler, Sheikh Mohammed bin Rashid al Makhtoum, fired his economic advisors and replaced them with family members.
That makes clear one special risk of investing in the Persian Gulf emirate, one of 7 mini-countries sewed together into the UAE in 1971 by the British, who had protected their independence for over a century against the expansion of Saudi Arabia. Emirates are run by emirs, absolute rulers who head tribes. Their personal purses and their mini-counties’ national accounts are hopelessly confused. It is something like trying to separate the debt of Henry V and that of his kingdom after he spent England’s money on a campaign in France.
The second special risk is that not all the UEA components have oil or gas. Dubai has neither. It has the best airport and a major water port. But no hydrocarbons, although they are being produced down the road a bit in the richest UAE country, Abu Dhabi. But for various reasons, its biggest creditor may take its time bailing out Dubai.
Sheikh Mohammed, who has ruled Dubai for about 4 years, is a liberal by the standards of the Gulf, over women’s rights, alcohol for tourists, and relationships with countries like Israel and Iran. He has taken the lead among Arab states in diplomatic recognition. Dubai also has been relaxed about customs collection and smuggling, which does not endear it to fellow UAE emirs.
Dubai tried to build on its business as an entrepot by buying P&O Ports, over which it was blocked by US protectionism. So the sheikh’s brother (the prior ruler) and he turned to more fun projects, the biggest of which is now sunk: the creation of offshore islands shaped like palmtrees (when seen from the air) to lure in foreign real estate investors. It features the world’s highest skyscraper, the Berj Dubai (in the city not the islands.)
Dubai built on its port business giving it excellent connections with many world centers. Its duty-free shop staff (mostly from the Indian subcontinent) and airline personnel needed better places to stay. So how about a vast palm-shaped island on reclaimed land? As happens in Florida, tourists from countries suffering winter were expected to sign up for homes in the doomed project.
Real estate investing is contagious and we reported from London on the sidetracked Dubai jv with the British Candy brothers in London’s Chelsea. Other Candy-Dubai projects are still live in London, notably the Hyde Park Gate apartment complex opposite Harrod’s offering palatial-size residences with enough bedrooms for your harem to Middle Easterners. It is close to completion but the partners are in disaccord and I suspect there will be no Dubai finance soon.
In Las Vegas, the future MGM Mirage jv is also in trouble. According to Joe Shaefer, my source on the goings on the the “salles privees” of Nevada, the high rollers and big spenders there today are Middle Easterners with more money than sense. Via Vegas, Dubai became a major investor in Cirque du Soleil from Canada, likely to survive. And via Hyde Park in Mme. Tussaud’s wax works museum which also probably will go on.
Less clear is the future of retailing to the Gulf rich, not just Harrod’s, but NY’s Barneys, which was rescued from bankruptcy by Dubai. Worse still is the likely fate of a new addition to Cape Town South Africa’s Victoria and Alfred waterfront mall, intended as a lure to Arabs escapting their summer. We spotted lots of veiled ladies during our stay in Cape Town last summer. Under threat too are golf club deals, including Turnberry in the US and Paarl Valley, a-building in southern South Africa.
And the poor horses in Kentucky bloodstock farms. By tradition, al-Makhsouds are the biggest buyer of thoroughbreds in the world.
For more on the impact on our portfolios, paid subscribers should read on. Five of our stocks are at risk from Dubai drops.
