Chapter 1 Introduction

Dubai is one of the seven emirates of the United Arab Emirates (UAE). It is located south of the Persian Gulf on the Arabian Peninsula. The Dubai Municipality is sometimes called Dubai state to distinguish it from the emirate. Written accounts document the existence of the city for at least 150 years prior to the formation of the UAE. Legal, political, military and economic functions with the other emirates within a federal framework, although each emirate has jurisdiction over some functions such as civic law enforcement and provision and upkeep of local facilities. Dubai has been ruled by the Al Maktoum dynasty since 1833. Dubai's current ruler, Mohammed bin Rashid Al Maktoum, is also the Prime Minister and Vice President of the UAE. The emirate's main revenues are from tourism, property and financial services. Although Dubai's economy was originally built on the oil industry, revenues from petroleum and natural gas currently contribute less than 6% (2006) of the emirate's US$ 80 billion economy (2009). Property and construction contributed 22.6% to the economy in 2005, before the current large-scale construction boom.

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Dubai has attracted attention through its real estate projects and sports events. This increased attention, coinciding with its emergence as a Global City and business hub, has highlighted labour and human rights issues concerning its largely South Asian workforce. Established in 2004, the Dubai International Finance Centre was intended as a landmark project to turn Dubai into a major international hub for banks and finance to rivals New York, London and Hong Kong. Dubai's gross domestic product as of 2005 was US$37 billion. Although Dubai's economy was built on the back of the oil industry, revenues from oil and natural gas currently account for less than 6% of the emirate's revenues. It is estimated that Dubai produces 240,000 barrels of oil a day and substantial quantities of gas from offshore fields. The emirate's share in UAE's gas revenues is about 2%. Dubai's oil reserves have diminished significantly and are expected to be exhausted in 20 years. Property and construction (22.6%), trade (16%), entrept (15%) and financial services (11%) are the largest contributors to Dubai's economy. Dubai led a decline in the cost of protecting bonds in the Gulf region from default today after the U.A.E. Central Bank eased credit for lenders and said it stands behind local and foreign banks as they face the prospect of rising losses from Dubai Worlds possible default.

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Credit-default swaps on Dubai fell 59 basis points to 588, according to CMA DataVision prices at 1:30 p.m. in London. The contracts more than doubled last week. National Bank of Abu Dhabi PJSC, the United Arab Emirates second-largest bank by assets, and Abu Dhabi Commercial Bank PJSC fell the most in more than five years on exposure to Dubai World Group. NBAD said today its owed $345 million by the company. ADCB may be owed $1.9 billion.

Chapter 2 Overview of Dubais Financial Position

The Dubai Financial Market (DFM) was established in March 2000 as a secondary market for trading securities and bonds, both local and foreign. As of fourth quarter 2006, its trading volume stood at about 400 billion shares, worth US$ 95 billion in total. The DFM had a market capitalization of about US$ 87 billion.

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The government's decision to diversify from a trade-based, but oil-reliant, economy to one that is service and tourism-oriented has made property more valuable, resulting in the property appreciation from 20042006. A longer-term assessment of Dubai's property market, however, showed depreciation; some properties lost as much as 64% of their value from 2001 to November 2008. The large scale real estate development projects have led to the construction of some of the tallest skyscrapers and largest projects in the world such as the Emirates Towers, the Burj Dubai, the Palm Islands and the world's second tallest, and most expensive hotel, the Burj Al Arab. Dubai's top re-exporting destinations include Iran (US$ 790 million), India (US$ 204 million) and Saudi Arabia (US$ 194 million). The emirate's top import sources are Japan (US$ 1.5 billion), China (US$ 1.4 billion) and the United States (US$ 1.4 billion). Dubai's property market has experienced a major downturn in 2008/2009, as a result of the slowing economic climate. Mohammed al-Abbar council of the sheik told the international press in December 2008 that Emaar had credits of US$ 70 billions and the state of Dubai additional USD 10 billions while holding estimated USD 350 billion in real estate assets. By early 2009, the situation had worsened with the global economic crisis taking a heavy toll on property values, construction and employment. As of February 2009 Dubai's foreign debt was estimated at
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approx. USD 100 billion, leaving each of the emirate's 250,000 UAE nationals responsible for 400,000 USD in foreign debt. However, it should be noted that little of this is sovereign debt. Some weeks ago, Dubai had issued to international investors, bonds worth $1.9trillion, which sent the message that its economic position is unshakable! But now that foundation has shaken!

Chapter 3
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The Financial Crisis

The Dubai Debt Crisis 2009 has been called by economists a consequence of real estate bubble burst when on November 26, 2009 Dubai proposed to delay repayment of its debt which includes delay in the payment of $ 59 Billion debt on Dubai World, the investment vehicle for the emirates for 6 months. Seeds of Trouble Due to the ongoing global financial crisis of 2008-09, Dubai's real estate market experienced a major downturn. This lead to the slowing economic climate. It was declared in an international press council by Mohammed al-Abbar who is senior aide to Dubai's Ruler and UAE's Vice President/Prime Minister, Sheikh Mohammed bin Rashid Al Maktoum and who serves as the Director-General of Dubai's Department of Economic Development, and Chairman of Emaar, one of the world's largest real estate companies in December 2008 that, Emaar had credits of US$ 70 billions and the state of Dubai additional US$ 10 billions while holding estimated 350 billion in real estate assets. By early 2009, the situation had worsened with the global economic crisis taking a heavy toll on property values, construction and employment.

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As of February 2009 Dubai's foreign debt was estimated at approx. USD 100 billion, leaving each of the emirate's 250,000 UAE nationals responsible for 400,000 USD in foreign debt. A longer-term assessment of Dubai's property market showed depreciation; some properties lost as much as 64% of their value from 2001 to November 2008. It contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, substantial financial commitments incurred by governments, and a significant decline in economic activity. In recent years, Dubai has expanded with ambitious, eye-catching projects like the Gulf's palm-shaped islands and the world's tallest skyscraper in hopes of becoming a tourist-friendly Middle Eastern metropolis. In the process, though, the statebacked networks nicknamed Dubai Inc. have racked up $80 billion in red ink. The emirate may now need another bailout from its oil-rich neighbor Abu Dhabi, the capital of the United Arab Emirates. The Burst of the Bubble: Dubai, ruled by Sheikh Mohammed Bin Rashid Al Maktoum, had borrowed $80 billion in a four-year construction boom to transform the economy into a regional tourism and financial hub.

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This emirate in the due course of time suffered the worlds steepest property slump in the global recession, with home prices dropping 50 percent from their 2008 peak. Dubai world with $59 billion of liabilities, sought a standstill agreement from creditors. Its debt includes $3.52 billion of bonds due Dec. 14 from property unit Nakheel PJSC. Some analysts say that : The core reason for the Dubai Financial mess up is that Sheikh Mohammed's decision to invest all his wealth as well as Dubai govt fortunes in Real estate markets in United states through a foreign investment arm of Emaar,which claimed to be the second largest property developer in US ,which ultimately went bankrupt due to recession and filed for chapter 11. Chapter 11 is a chapter of the United States Bankruptcy Code, which permits reorganization under the bankruptcy laws of the United States. (Chapter 7 governs the process of a liquidation bankruptcy, while Chapter 13 provides a reorganization process for the majority of private individuals.) Subsequently, Dubai shifted into crisis mode with its dangerous building boom stalled, its lending bonanza vanished and government pondered wider steps to rescue banks. Inability to pay debt:
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Dubai government has announced just recently, for the time being , not in a position to repay its outstanding debt of $7,40,000.At the same time, Government owned mega finance institution-Dubai World also declared that it may not be able to repay any loan for 6months.This 'Dubai World' is engaged in different business enterprises like-transport, ship building, township building, etc. A sister-concern of Dubai world a building construction company, named NAKHEEL is also telling that it requires some more time to repay its debt installments. Speculation has mounted that Dubai was struggling under a mountain of debt and would have to start selling assets or get bailed out by Abu Dhabi. Property prices in Dubai have plummeted by as much as 40pc in two months. Officially Dubai continued to insist everything was fine while refusing to reveal any figures. Meanwhile Dubais stock market is down 60pc this year, hitting many of the listed companies.

Assets and liabilities of Dubai: (as of 05.12.2009) Sno. Particulars Liabilities: 1 2 Sovereign debt State-affiliated debt $10 billion $70 billion Amount

Asset: 1 2 Sovereign assets State-affiliated companies assets $90 billion $260 billion
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So, total debt: $80bn against total assets of $1.3trillion Dubai GDP : Dh198bn (35.6bn pounds) Ratio of debt: GDP is 148% compared with 57% in USA, 40% in Britain, 99% Japan Debt per capita: $40,000 per head if split between Dubais population of two million.

Chapter 4 Reason for Dubai Financial Crisis

Dubai, unlike other six emirates of UAE is not a country rich with oil resources. This city state is purely a business city which wholly depending upon tourism and other businesses. Dubai World, in a haste to attract world entrepreneurs started spending more and more on building fine roads, star hotels etc. Foreign institutional investors also invested much here, especially during the last four years.
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What happened was that the Dubai government requested the creditors of Dubai World (one of three conglomerates that are backed by the emirate), to agree to a 'standstill' on repayments until May 30 2010. The standstill also applies to the $4.05 billion sukuk, or Islamic bond, issued by Nakheel, the state-owned builder famous for the spectacular Palm Jumeirah scheme and other such mind boggling projects that involve large-scale land reclamation. Nakheel's parent company is Dubai World. The truth is that Dubai is being crushed under a mountain of debt. The emirate has chalked up debt in excess of $80 billion by expanding in banking, real estate and transportation. Dubai World with $60 billion liabilities has sought a six-month standstill on its debt repayment to all its lenders. The emirate borrowed $80 billion in a four-year construction boom that transformed Dubai into a glittering jewel in the middle of the Gulf region and also into a tourism and financial hotspot. Dubai's sovereign credit default swap has surged 1.11 per cent to 4.29 per cent, leading to global rating agency Standard & Poor's placing the ratings of four Dubai-based banks on negative outlook due to their exposure to Dubai World. The debt itself might not seem too high, but the uncertainty surrounding the entire issue has spooked financier. Investor confidence the world over has been shaken up badly, as many wonder if the world would slip into another recessionary phase, given that there are some other nations in a similar situation as Dubai: Greece,
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Iceland, Hungary being just a few of them. Many nations that are following Dubai's development pattern are inviting trouble, said analysts. Economists fear that they might have been too hasty in predicting that the global financial crisis had ended. The Dubai shock was as severe as it was sudden. Just a few weeks ago (November first week), Dubai's ruler Sheikh Mohammed bin Rashid al-Maktoum, had assured all that the emirate's financial condition was all right, saying that it would raise more funds to meet its financial commitments and would be more cautious. As is normally the case in autocratic regimes like Dubai, no one knew what the real situation was till it was too late. Analysts feel that either the ruler was unaware of the magnitude of the problem or his advisors asked him to keep it under the wraps.

Chapter 5 Impact of Dubai Financial Crisis

A storm broke out in last November, emanating from the part of the world that is widely seen as a major beneficiary of the rise in oil prices. Yet Dubais story is not about oil. Indeed it is precisely the absence of oil and natural gas (less than 6% of GDP) that prompted this emirate go down the path of tourism, hospitality, and commercial real estate development, that lies at the heart of the matter now. The financial crisis in Dubai continues the Tower of Babel curse. Attempts to build the tallest building in the world require such investor euphoria and access to capital that they frequently mark a top of the cycle. Burj Dubai, which was topped earlier
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this year did not just edge out the former giant Taipei 101, but leapt above it (at 818 meters vs. 509 and 162 floors vs. 101). Twice Told Tale It has been clear for some time that Dubais opulent construction of an adult play ground in the Middle East was a bit over the top and that its projects were designed for radically different economic conditions. There have been reports of largely empty luxury hotels, unfinished projects, partially built buildings and more difficult credit conditions. Construction companies, suppliers and foreign workers have reported that the commercial real estate bubble has popped. Earlier this year, Nakheel, the property company owned by Dubai World, which is the chief protagonist, received financial support. Like the similar reasoning that the US Federal Deposit Insurance Corporation (FDIC) often uses in announcing bank closures after the markets have closed on a Friday(in november), Dubai Worlds request for a six month standstill on the servicing of its $59 billion of debt, including a $3.5 billion sukuk (Sharia compliant bond-like instrument) that was to mature in December. The usual lack of transparency, coupled with the region religious holiday and the Thanksgiving Day

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holiday in the United States, made for extremely thin market conditions and encouraged risk-minimization and defensive actions. Matters were further complicated by the postponement of a Dubai World press conference and a computer glitch at the UKs London Stock Exchange, which incidentally but unrelated is reportedly a fifth owned by the Dubai. Many believe that as goes Dubai World so goes Dubai, and expect its larger and richer neighbor, Abu Dhabi to exact political concessions in exchange for providing support. Dubai World accounts for roughly three quarters of Dubais debt and about half of Dubais $25 billion remittances. There are seven emirates in all that make up the United Arab Emirates (UAE). Dubais GDP of roughly $40 billion accounts for something on the magnitude of 2% of UAEs GDP. Yet what ails Dubai appears to be affecting the UAE as whole. Some reports indicate that nearly half of the $582 billion construction projects are on hold or simply cancelled. Implications There are a number of channels by which the events in Dubai can have a material impact on the global capital markets even for those who are not directly exposed. However, we judge the immediate reaction excessive, while at the same time

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recognizing that the panicked reaction confirms our suspicion that despite the rally in risk assets since late March, market sentiment remains fragile and jittery. First, a review of data from the Bank for International Settlements suggests that outside of the UK, foreign bank exposure to the UAE itself is rather diversified, though as one might have suspected, they are concentrated in Europe. Of the roughly $123 billion UAE foreign obligations, UK banks are responsible for about $50 billion and Europe as a whole almost $90 billion. US banks account for about $10.6 billion, while Japanese banks have just shy of $9 billion exposure. Trying to drill down to the emirate level and company level are a bit more difficult as the data is hard to find and what is available appears few years old at best. Nevertheless, while a default by Dubai, should it come to that, would be the largest sovereign default since Argentina in 2001, would do the beleaguered banks no favors, it probably will not undermine capital ratios in any material sense. A second potential impact is on the monetary policy of the major central banks. Central banks in the developed countries for the most part, with the UK a notable exception, are unwinding some of the extraordinary measures associated with the crisis, though for the most part (Australia and Norway are the exceptions) stopping shy of actually raising interest rates. The new albeit mild shock for their troubled banks and, should the heightened volatility in the global capital markets be sustained, would seem to encourage policy makers, in anything, to move slower
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and more cautiously perhaps than before. We think this is of marginal significance at the moment. A third potential impact is on the UAEs peg to the dollar. While the Saudis stance toward the dollar peg has been unwavering, the UAEs central banker has been all over the board. In mid-November, Kuwaits basket approach was seen favorably as an alternative to the dollar-peg, but late in the month, desire to drop the dollar appeared to have cooled off significantly. The dollars peg among the Gulf Cooperation Council, except for Kuwait, is an element of stability and may be marginally less likely to be jettisoned now than before. Impact on British banks British banks appeared to be at most risk if Dubai World can't pay its bills. London-based lenders HSBC Holdings and Standard Chartered could face losses of $611 million and $177 million respectively, according to early estimates from analysts at Goldman Sachs. Both have substantial Middle East operations. Impact on Korea South Korea estimated the country's financial institutions have just $88 million in exposure. Construction firms from Japan, Australia and South Korea behind Dubai's recent development boom also might be on the hook. Impact on US & Citi group
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Among U.S. banks, Citigroup Inc. had $1.9 billion in exposure to the United Arab Emirates as of 2008, according to a JPMorgan research note. But it's unclear how much of that was related to Dubai. Citigroup declined to comment. Impact on Japan In Asia, Japan's Sumitomo Mitsui Financial Group, the country's No. 3 bank, could be exposed to Dubai World's indebted property arm at the cost of several hundred million dollars, according to a person familiar with the matter. Impact over commodity Market In the commodity market, crude oil tumbled to a six-week low as Dubais attempt to reschedule its debt prompted investors to sell commodities.Gold dropped the most since January in London as gains in the dollar damped demand for the precious metal as an alternative asset. Gold for immediate delivery dropped as much as $50.28, or 4.2 percent, to $1,138.10 an ounce, the biggest intraday slide since Jan. 12. The metal traded at $1,152.33 by 9:09 a.m. in London. Impact over currency Market In the currency market, Dubai debt fear continued to drive investors away from risks, sending Asian stocks sharply lower while Yen soars, taking dollar higher with it. Investors are clearly worried about the risk of contagion effect from Dubai which could trigger second wave in the credit crisis.The Nikkei 225 Stock
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Average index dropped 416.18 points or 4.38%, while the broader Topix index has lost 27.7 points or 3.3%, for the week ended Friday, 27 November 2009. The Shanghai Composite Index, measuring A shares and B shares on the Shanghai Stock Exchange, slumped 74.71 points, or 2.36%, to 3,096.26, meanwhile the CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, tumbled 2.96%, to 3,382.51. In Australia, the share market plummeted with all round of selling across twelve sector, sparked by meltdown in European stocks and other Asian bourses after Dubai World, the Dubai governments investment and development vehicle, said it would halt repayments for up to six months on its nearly $60 billion in debt. In other regional market, European shares pulled back from early lows on Friday, as investors started to buy up shares in firms battered in the previous session by news that Dubai is seeking to postpone repaying the debt of its corporate entity Dubai World. Regional share markets were also off lows in Europe. The U.K. FTSE 100 index declined 0.3% or 13.72 points to 5,180, the German DAX index fell 0.2% or 12.76 points to 5,603 and the French CAC-40 index lost 0.1% or 4.10 points to 3,675. Impact over International Banks The Dubai crisis could have a "meaningful impact" on banks across Asia, said Daniel Tabbush, Asia banks analyst at CLSA in Bangkok, listing Standard
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Chartered, HSBC and Singapore's DBS Group as the most exposed in the region. Shares in HSBC Holdings dropped more than 7 percent and Standard Chartered fell 6 percent. The London listed shares of the two lenders led the biggest tumble in European bank stocks in six months on Thursday.

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Chapter 6 Impact on World and Indian Economy

Anxiety over Dubais economic health has shaken world markets after Dubai World, the fulcrum of the emirates economy, announced that it would delay repayment of some of its debt. The lack of information about Dubais flagship holding company, which is owned by the government, triggered indiscriminate selling of stocks linked to the region. Dubai, which borrowed $80 billion to fuel a four-year construction boom, was badly hit by the global recession, with home prices halving since the 2008 peak. The Dubai World conglomerate is the emirates largest corporate entity, with its businesses covering real estate, port and leisure sectors. The company has asked for a standstill agreement to delay repayment by six months on most of its $59 billion of debt. Markets in Asia fell sharply in the backdrop of the disclosure. In Japan, the Nikkei 225 had lost 3.2 per cent, its biggest one day fall in nearly eight months. In Seoul,the Kospi dropped by 4.7 per cent, marking a four-month decline. Hong Kongs Hang Seng fell by 4.8 per cent. The cascading effect of Dubais debt problems were felt worldwide, because the emirate is the regions key financial centre, and is well integrated with global
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markets. Analysts say that any default in debt repayment by Dubai can set a dangerous precedent, and the contagion could spread, threatening the fragile recovery of the global economy from recession. Oil prices have dropped sharply, raising concerns about economic confidence in the world economy. In the United States, crude oil fell by 5% to $74.23 a barrel and London Brent Crude oil dropped $1.47 to $75.42. However, some analysts are of the view that the emirate of Abu Dhabi, which is rich in oil, and continues to remain financially strong, is expected to bail out Dubai out of its current financial difficulties. Fuelled by its oil revenues, Abu Dhabi, unlike Dubai continues to witness as real estate boom, absorbing South Asian, and especially Indian labour in significant numbers. About 4.5 million Indians live and work in the Gulf region and remit more than $10 billion annually. Representatives of major Indian construction and engineering companies have maintained that Dubais financial woes are unlikely to affect them much as their exposure to the emirates real estate sector has been limited. Indias only full-service back in the United Arab Emirates (UAE), Bank of Baroda has exposure of 7-8 percent of its loan book in the country.

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As far as India is concerned, real estate sector and banking sector have some exposure there, though not big enough to have much impact. But in case those Indians who are working there, lose their jobs, then Indian job market may feel pressure. UAE is big importer of Indian items; our exports may also suffer a bit. Economists call Kerala a money order economy, precisely for the reason that every third house in Kerala has a man working in the Gulf. 50 lakh Indians who work in the gulf, the Malayalee diaspora alone account for more than 20 lakh and they bring in more than 25 per cent of the state's GDP as remittance.

So if the markets crash in the Gulf the direct impact will no doubt be on the economy of the state. Not just that the future of two of Kerala's multi-crore projects, the Smart city and the Vallarpadam Shipping Terminal is also uncertain as both have Dubai World as partners. Still, there are strong linkages between companies in India and Dubai . There might be some impact .However, The impact will only be on certain individuals and corporate and will not be felt by the entire country . BOLLYWOOD woes .The market (Dubai) generates 40-45 per cent of the overseas collections for Bollywood films .Dubais debt woes have got Bollywood producers and distributors worried as the city is a significant contributor in the West Asian market for Hindi films.
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Reasons that make Dubai important to Indian companies Dubai is the hub of most traded commodities from pearls, gold and diamonds to tea, cotton, basmati and sugar. More crucially, it is gateway to the Middle East. All the top players in the region, especially Gulf Cooperation Countries (GCC), have a presence there and use Dubai as a convenient and glitzy business centre to meet each other and the outside world. So, to Indian companies Dubai epitomises their entire Middle Eastern business, whether it is Saudi companies or Iranian traders. Dubai-based importers would reduce buyers credit because they will themselves be feeling the squeeze as local banks hunker down. Trade finance will start drying up because the liquidity crisis and higher risk will drive up interest rates on loans and advances. Indian exporters will reduce open account sales where the goods are delivered before payment is due because they are so risky. Intense competition may have forced Indian exporters to make such sales in the past. Not any more. Right now their focus will be on getting back the money they are owed. Nervous Indian banks will start demanding more documents and letters of credit because this substantially reduces risks for both exporters and importers. You can bet on documents meant for Dubai being scrutinised more carefully and higher rate
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of rejection. Banks will also charge more for the same trade finance instruments because of exploding counterparty risk. Currently, Dubai's credit default premium is on par with Latvia.

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Chapter 7 Beneficiaries of Dubai Debt Crisis

As investors flee debt in Dubai, neighboring Bahrain, Qatar and Saudi Arabia are likely to pick up much of its Islamic banking business, though the financial hub is expected to bounce back eventually. While banks and builders from London to Singapore count their losses from Dubai's troubles, there are also worries the crisis will hurt its status as a regional centre for sharia finance, which itself had a hand in the emirate's meteoric rise. Dubai got down investments as Islamic banking boomed on the back of record oil prices, drawing throngs of specialist lawyers and bankers attracted by its ease of doing business and more cosmopolitan lifestyle than its conservative rivals. The emirate positioned itself as a Islamic finance centre with top lenders like HSBC, Deutsche, Standard Chartered using it as a base, as it sought to become a financial hub between Asia and Europe. Much of that money and talent could now to flow to its immediate neighbors as Dubai slowly works through its mountain of debt and its shaken financial community exhibits a newfound aversion to risk. Up for grabs is a bigger share of an estimated $1 trillion Islamic financing industry, which like conventional banking is back on a growth trajectory as the global credit crisis ebbs.
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Saudi Arabia, Bahrain and Qatar, which also have ambitions of becoming regional financial centers, will catch up as they are well regulated and have developed at a more measured pace, bankers told Reuters. Countries outside the Middle East are less likely beneficiaries, market watchers say. Malaysia, for example, has the world's largest Islamic bond market and is known for more business-friendly interpretations of what is allowed under sharia law than many Gulf countries, opening the door for a far greater range of financial products. Its ringgit currency, however, is tightly managed, restricting the ease of investment flows. Many Gulf currencies, meanwhile, are changed to the U.S. dollar.

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Chapter 8 Conclusion
After the study about Dubais past and present situation of Property & real estate industry and Financial sector I feel that Dubai Property business is at cross roads at present as conflicting news are coming from Dubai. On one side it is being said that Dubai rents are declining sharply and on other side, news are coming that a rise of up to 8% has been observed in the prices of apartments in Dubai following a rise in prices of villas in Dubai as well. So what is the actual situation going on over there right now?? There is no doubt in it that Dubai is going through a huge economic, financial and real estate crisis which is obviously the worst of its kind in the history of Dubai but whether this crisis and depression is to last for a long or is there any hope that Dubai would succeed in recovering to its previous position where it was in 2006. To counteract the conflicting news about Dubai, there comes the report of profits of Emaar Properties which is among the biggest real estate and construction companies in Dubai and it has announced a profit of about $178 Million for its 3rd quarter. Another positive news announced by Standard Chartered Bank recently is that there is massive increase in growth of small and medium sized enterprises and
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their contribution in overall GDP of Dubai is increasing constantly which is really important for such a state which is heavily dependent on Oil reserves and Real Estate industry to run its economy. Also there is another news of increase of about 19.5% through Dubai International airport and which is clear evidence that Dubai tourist industry is expanding rapidly and Dubai (also know as Switzerland of Asia) is taking the form of a tourist hub in Middle East. Construction of buildings like Burj Dubai which is followed by another tallest tower Nakheel Tower would help Dubai economy to recover to its previous position of 2006. The other side of the picture must also be considered and truly speaking, the biggest problem faced by Dubai real estate today is the oversupply in real estate industry. Also Dubai is currently facing the crisis of reduction in population which is making the situation even worse and there is an excess of villas and apartments which are mostly empty and it is expected that this oversupply would be manageable until 2015. Also due to the recent fall in real estate properties in Dubai, investors have lost their confidence in Dubai real estate industry and it would take a bit long time to recover their confidence. By discussing this overall current situation of Dubai, it is being said by real estate experts over there that though Dubai is currently going through crisis and it would take it 2-3 more years to get out of this crisis but eventually prices have to go up in the end. As far as renting is concerned, Dubai is still a great place for renting
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luxury offices at very cheap prices and it is a great opportunity for international companies which dont have their offices in Dubai yet. And regarding purchase of a property in Dubai, it would be too much beneficial if one is thinking to invest in Dubai for long term period as prices in Dubai are almost at bottom and it would take a bit long time for them to recover again. Therefore, investing in Dubai for short term period is not a good idea but investing for long term is expected to have remarkable benefits for property investors in future and for those, this piece of land can bring benefits which no other place in the world cant, right now. In spite of all criticism from around the world Dubai still has an hope to bounce back from this issue. This kind situation is not a new one to Dubai. Earlier during 1991, Dubai faces same kind of problem. But it came out that issue tragically. At that time its sister emirate Abu Dhabi financed to recover from it. Of course now the amount require to recover from this issue is huge when compare to earlier. But there is being supported by Abu Dhabi with some limitation. As of now Dubai may or may not survive in the future. Because day by day its stock market value coming down due to this issue. If Dubai is not able to repay its debt, it will cause big set back to all over the world. It will create more unemployment problem to India (42.5% population in Dubai are Indians).

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Chapter 9 CASE: DUBAI BANK

The announcement was both stark and bleak: The Dubai government, acting under directions from His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of UAE, Ruler of Dubai, announced today that it has taken over Dubai Bank with immediate effect. The announcement was made through WAM, the UAE state-owned PR Company on Monday.

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According to the statement the government will inject an unspecified amount of cash into DB, completely diluting the holdings of DBs current shareholders, Dubai Holding and Emaar, who own 70% and 30% respectively and allow the government to make a complete takeover. According to Dow Jones, The book value of Emaars investment in DB as of March 31, 2011 was AED172m ($46.9m). The history of DB has been checkered. The bank was granted a license to operate as a conventional bank in September 2002, but it quickly became apparent the newcomer could not compete in the retail market with 51 other banks and in 2004 its new CEO former JPMorgan man Ziad Makkawi was brought in to turn DB into an investment bank. This was not a successful move, so in 2007 DB became an Islamic bank, just in time to reap the whirlwind of the global financial crisis and the collapse of the Dubai property market. Under a new CEO, Giel Jan Van Der Tol formerly of ABN Amro DB began a restructuring program in 2010, but still looked like a bank without focus or direction. Amar Meher, senior associate with Vinson & Elkins in Dubai told The Islamic Globe: We have four leading Islamic banks in Dubai with Dubai Islamic Bank, Noor, Emirates Islamic Bank and DB competing for the same business. It makes

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sense to me that the role of DB in this market is revisited, particularly in view of the impact of the global economic crisis on the banking industry in general. Dubais move will have a negative knock-on effect for both Emaar and Dubai Holding, as the dilution will mean the companies will have to shoulder a hefty write-down. The real question now is whether the government will allow the bank to continue to function as a standalone entity in a notoriously overbanked market or whether there is a more prosaic answer to be sought through merger? David Testa, MD of David Testa Consultancy, an Islamic finance consultancy, told The Islamic Globe: This might be a way to clear the decks and consolidate Islamic banking assets and avoid another round of [local banking] instability, as Dubai is making some progress at this time in light of other regional concerns such as those affecting Bahrain. The successful merger of Emirates Bank International and the National Bank of Dubai to form EmiratesNBD has so far not been repeated in UAE in spite of constant rumor that ADCB and NBD would make perfect bedfellows. There is any number of banks that might sit well alongside Dubai Bank including Noor Islamic Bank and Emirates Islamic Bank as well as Emirates NBD itself.

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Meher said: Locally the press had speculated that DB might merge with EIB. I understand that merger fell through though as EIB was not keen on assuming any losses that may have been incurred by DB and thus passed on to its stakeholders. It appears DBs problems lie in past heavy lending to parts of Dubai Holding, a conglomerate owned by Sheikh Mohammed, Dubais ruler. The latest figures made public by the bank show a loss of AED291m ($80m) for 2009 at which point it had total assets of AED17.4bn ($4.76bn) and outstanding loans of AED14.1bn ($3.86bn) and the unspecified bailout of DB by the government is likely to be a sign that DBs loan book is unappetizing, which could have a stymieing effect on any merger prospects as the abortive merger between the two UAE-based Islamic home financing entities Amlak and Tamweel showed. One Dubai based lawyer, who preferred not to be named said: It's most likely that DB will hook up with DIB in a shotgun wedding. DIB's main dealmakers have moved onto other entities within Dubai Inc, Noor is a different kind of beast and DIB has a tarnished reputation because of some of the things that went on in the past - so a tie up between these two banks would be sensible. The situation remains deliberately vague to allow maximum room for manoeuvre. DB declined all requests from The Islamic Globe for an interview.

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Testa concluded: Its a wake-up call for Islamic banks, showing that even with strong government backing, its not always easy to make money in Shariah compliant banking. Dubai announced last Wednesday that it would ask creditors of Dubai World, the conglomerate behind its rapid expansion (it built the worlds tallest building), and Nakheel, the builder of its palm-shaped islands, to agree to freeze debt repayments for six months. Some commentators are of the view that banks that have lent money to Dubai World could suffer significant losses if the company were to default on all or part of its $59 billion debt. Dubais total debt stands at $80 billion. If creditors were to reject proposals to postpone debt repayments for six months, the Dubai government could be forced to hold a fire sale of its international real estate assets. Analysts however are of the view that other emirates of the UAE United Arab Emirates -such as Abu Dhabi are unlikely to be affected by Dubais crisis significantly since their funding is derived from exporting oil and gas. The key factor behind the crisis is the boom-bust policy of the UAE central bank. After closing at 4% in October 2006 the yearly rate of growth of the central banks balance sheet (the pace of monetary pumping) climbed to 177% by December 2007. In response to this pumping the yearly rate of growth of UAEs monetary
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measure AMS jumped from 6% in October 2006 to 62% by April 2008. This massive pumping has given support to various activities that without the money pumping wouldnt have emerged. In short these activities cannot stand on their own feet without support from monetary pumping. Since January 2008 the pace of pumping by the central bank has been trending down. In January this year the yearly rate of growth of the central banks balance sheet plunged to minus 36.5%. As a result the yearly rate of growth of money supply fell to minus 12.5% by July this year. It is the fall in monetary pumping that is currently putting pressure on various activities that sprang up on the back of previous massive monetary pumping. We suggest that other emirates are unlikely to escape the effects of the boom-bust policies of the central bank. Also, in other emirates loose monetary policy set the platform for new activities and the expansion of existing activities. As a result of a decline in monetary pumping by the central bank these activities are currently also under pressure. A possible debt default by Dubais two large government sponsored conglomerates sparked worries in financial markets of another round of global economic turmoil. Dubai has requested a freeze on payments of some of its $80 billion debt for six months. We suggest that the key factor behind the crisis in Dubai is the classical boom-bust policies of the UAE central bank. The phenomenal expansion in various
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structures in Dubai was mostly on account of massive monetary pumping. Thus in December 2007 the yearly rate of growth of the central banks balance sheet stood at 177%. The bursting of the bubble came on account of the strong fall in money pumping. Since January 2008 the pace of pumping by the central bank has been trending down. In January this year the yearly rate of growth of the central bank balance sheet had plunged to minus 36.5%.

Chapter 10 Sources and References

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S no 1

Website http://hubpages.com/hub/FINANCIAL-CRISIS-IN-DUBAI-REASINS-ANDEFFECTS http://blogs.telegraph.co.uk/finance/louisearmitstead/5829577/Dubai_finally_r eveals_its_financial_position/ http://business.rediff.com/slide-show/2009/nov/27/slide-show-1-dubai-shockwhy-it-happened-how-it-hits-india.htm#contentTop http://seekingalpha.com/article/175772-the-potential-impacts-of-dubai-sfinancial-crisis http://beta.thehindu.com/business/article55995.ece http://www.dfm.co.ae/pages/default.aspx?c=1053 http://www.nasdaqdubai.com/products/ftse.html

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