In Dubai, the state of The World is in dispute

AFP/File – An aerial view shows a cluster of man-made islands known as "The World". The cluster of 300 … .by W.G. Dunlop W.g. Dunlop – Fri Jan 28, 6:23 am ET


DUBAI (AFP) – A cluster of 300 artificial islands off Dubai's coast in the shape of a global map is stable, its developer Nakheel insists, despite a court claim alleging that "The World" was neglected and eroding away.

"There is no issue with the stability of The World islands that are approximately 70 percent sold and handed over," a Nakheel spokesman said when asked about the allegations.

"The island purchasers (have) the responsibility to proceed with their developments in due course," he added.

The islands, many of which represent individual countries and which can only be accessed by boat or helicopter, were meant to be one of the Gulf city-state's crowning developments.

Builders have announced plans for a few of the islands, but development has yet to begin on most of them.

A company contracted to provide logistics support to the islands filed a claim with a tribunal that handles cases related to the emirate's troubled Dubai World conglomerate, alleging that third-party developers had not been encouraged to develop the islands, and said they were being hit by erosion.

Nakheel subsidiary The World LLC "did not develop the project as anticipated at the time of the agreement and the project has lain largely undeveloped," according to the claim filed by Penguin Marine Boats Services LLC.

Penguin is contracted to pay "a licence fee of 5 million dirhams ($1.36 million dollars) per annum" to conduct operations, but the lack of development on the islands means it has "been unable to develop its business opportunities," the claim said.

Additionally, "the navigation channels... are presently so ill-defined and the water depths have been so seriously eroded due to reclaimed sand silting up the navigation channels that major reclamation works will henceforth be required," it said.

A lawyer for Penguin Marine, Richard Wilmot-Smith, was quoted by local media as having told the tribunal that "the islands are gradually falling back into the sea."

Nakheel dismissed the allegations as "misleading and mischievous statements."

"The wholly incorrect and unsupported assertion relating to the state of The World islands was made in the context of a legal case brought against The World LLC by a logistics provider," the spokesman said.

"Nakheel will continue to protect the interests of its operations and stakeholders and take such action as is appropriate in the circumstances," he added.
The spokesman said that the case "was dismissed with costs awarded in favour of The World LLC. We are vindicated by the court's decision."
However, a final judgment with reasons for the decision has not yet been posted to the tribunal's website, where judgments appear after they have been issued..

Abu Dhabi-based English-language daily The National said that the tribunal ruled against Penguin but has not yet given its reasons for doing so.

Lawyers for Penguin Marine declined to comment, and the company's general manager Alex Labor said only that "Penguin's position is... what our lawyers said during the trial."

Nakheel, which developed Dubai's iconic palm-shaped islands and the Atlantis luxury hotel among other developments, was hard-hit by the global economic crisis, which led to a sharp fall in Dubai real estate prices.

Nakheel was to split from parent company Dubai World, which rocked global financial markets when it announced in November 2010 that it needed to freeze debt payments, under a debt restructuring plan.

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Dubai creditworthiness still fragile

-- The author is a Reuters Breakingviews columnist. The opinions expressed are her own --

By Una Galani
DUBAI, June 15 (Reuters Breakingviews)- Is Dubai really a safe haven? The emirate will try to take advantage of the contrast between the Arab unrest and its financial recovery, with the launch of a 10-year dollar bond, its second sovereign issue since its own debt crisis began in late 2009. But on some measures, indebted Dubai remains only marginally more creditworthy than some of its prickly neighbours.
Dubai is in better shape than it was. With a lifeline from Abu Dhabi, the government has agreed a restructuring for flagship conglomerate Dubai World. Hotel occupancy rose between January and March this year, according to HSBC, with visitors escaping less stable climes.(Climate: in search of warmer climes.
) New export orders have also continued to rise over the period.
But Dubai's move to sweeten its latest sovereign issue highlights the emirate's weak spots. A five-year put will give bondholders the option to redeem their debt at face value before the final maturity date. Final terms haven't been disclosed, but the extra guarantee should enable Dubai to secure a lower cost of borrowing, nearer to that of a five-year bond.
Cost-cutting is welcome. But the option will also add to uncertainty about when the emirate's debts are due. The government's total direct debt is around $31 billion. But if quasi-sovereign entities are included, Dubai could be on the hook for over $111 billion or over 130 percent of nominal GDP in 2010. A little less than one third of the total is due this year and next. And a further $25 billion-plus is maturing in 2014, according to estimates made by Credit Suisse at the start of the year.
Restructuring has given Dubai breathing space but it hasn't addressed concerns about the absolute size of its debt load. And there is little sign of action on that front. The emirate still doesn't have a credit rating, and no asset sales are on the agenda. Nor are plans to implement income or corporate taxes.
Judging by demand for Dubai's previous sovereign issue, the emirate won't struggle to find buyers. High oil prices generate plenty of cash looking for a home. But at around 300 basis points, credit default swaps suggest Dubai is only slightly less risky than Lebanon or post-revolutionary Egypt. The CDSs of true safe havens like Abu Dhabi and Qatar trade at only a fraction of that amount.

CONTEXT NEWS
-- Dubai's government is offering a 10-year dollar bond with a five-year put option, according to banking sources.
-- The benchmark sovereign dollar bond, expected to be issued in the coming days, will be the government's second issue since the debt crisis and is part of an existing $5 billion debt issuance programme.
-- New bond issues in the Middle East and North Africa (MENA) are expected to match or top last year's $40 billion, according to Deutsche Bank.
-- The five and 10-year bonds sold by the government of Dubai in October carry a coupon of 6.7 percent and 7.75 percent respectively, according to data from Reuters.
-- The joint book-runners for the Dubai sovereign bond are Emirates National Bank of Dubai, HSBC, Royal Bank of Scotland and UBS.
-- Government of Dubai bond prospectus: http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=10889667

((una.galani@thomsonreuters.com))
(Editing by Pierre Briançon and David Evans)