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Signs of Returning Confidence

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Angus Taverner

Director- Global Affairs

Tag: economy Public Opinion United Arab Emirates
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Soon will come the first anniversary of Dubai Worlds (DW) edict to the world to stand still while it rearranged its financial commitments, a move that rocked the worlds markets and for a time cast doubt over the future of the emirate.  This anniversary it may be appropriate to celebrate the signs of confidence returning in Dubai, a confidence moderate, even conservative, in tonelacking the former exuberance.  As Richard Spencer, the UK Daily Telegraphs Dubai resident correspondent put it, the bubble and bling era is clearly over.
Upon DWs statement that it had the agreement of 99% of its creditors for the new debt structure and expected the final settlement within weeks, the government of Dubai appears to have shifted to offense.  First came the news from Dubais Director General of the Department of Finance, Abdulrahman al-Saleh, that Dubai is planning to seek a full sovereign credit rating.  Many hope that this implies Dubais commitment to greater financial transparency that would impress potential future investors.
Dubais ruler broke off from his preparations for an Horseriding Endurance Race in Lexington (in which he subsequently came second and the UAE team took Gold) to give an interview for Bloomberg TV. This was his first direct interaction with the international media in a year.  HH Sheikh Mohammed bin Rashid al Maktoum insisted that we are back and that he continues to be excited by the challenge of Dubais endurance ride on the road to recovery.
This offensive has included the launch of Dubais first sovereign bond since the DW meltdown.  Commenting on the launch prospectus, The Wall Street Journal opined that it reflected Dubais returning confidence and noted it had good prospects because of the return of a broader international appetite for higher yielding investments that is making credit easier to obtain.  Perhaps demonstrating that Dubai is walking the walk, the bond surprised many not only by raising $1.25 billion, mainly from regional and Asian investors, but also by being oversubscribed four times.
This successful first foray back into the market points to several conclusions.  First, most investors assume that DWs arrangement of its debts is essentially complete.  Second, Dubai has successfully portrayed itself as still the major financial services centre of the Middle East.  Third, demand for investment opportunity in the region remains healthy, with many investors wanting to share in the benefits of the financial centres future economic fortune.  Moreover, government securities on neither side of the Atlantic have been able to serve the pent up appetite for yield across the international investment spectrum.  The universally positive coverage that Dubais bond sale attracted justifies a catchphrase of the moment:  Dubai is back. 
In this spirit some analysts now forecast that Dubai might return quickly to the market to raise further capital.  However, apparently determined to quell any speculation along these lines, Abdulrahman al Saleh formally announced that Dubai has no intention to sell more bonds in the near future.  Many analysts will have seen this as a sensible precautionary step, particularly because a headlong return to market might capsize the concluding stages of DWs debt renegotiation.  Holding off also sends a message that the financial underpinning of the Dubai government remains sound, and that no pressure is on to raise capital immediately.  This message also encourages private sector efforts to raise capital, something Dubais recovery needs as much as it needs government financial soundness. 
While Dubais bond sale experience improves confidence all around, the high yields the bonds required suggest that investors still see a measure of residual risk.  Further, while Dubais being afloat seems assured, post-crisis assessments of the economic challenges of the past year continue to conclude that influence within the UAE has tilted.  That Abu Dhabis financial support, commitment, and public endorsement have been vital to Dubais current positive image, has led many observers to believe that the relationship between the neighbouring emirates has changed.  The image is not so much now the jealous rivalry that some commentators gleefully suggested last year.  Rather, it is that the emirates now share a respectful understanding and acceptance of each others strengths.  To the extent that this image reflects reality, the United Arab Emirates will benefit from this change which indicates a maturity and a capacity for cooperation better tuned to guarantee the nation a rewarding future. 


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