Business and Finance

Dubai ruler Sheikh Mohammed Bin Rashid Al Maktoum fired one senior aide and removed three others from the board of Dubai’s main holding company as the debt-laden emirate tries to secure a second $10 billion injection of funds.

On Nov. 20, Sheikh Mohammed removed the governor of the Dubai International Financial Centre, Omar Bin Sulaiman, who had led efforts to transform Dubai into a Middle East finance hub. A day earlier, he dropped Mohammad al-Gergawi, Sultan Ahmed Bin Sulayem and Mohammed Ali Alabbar from the board of the Investment Corporation of Dubai. The three were at the forefront of a construction drive that began in 2002 and collapsed last year after the global financial crisis engulfed Dubai.

Sheikh Mohammed’s moves were aimed at exerting more control over the web of competing, state-owned companies that he used to accelerate diversification away from oil and which amassed $80 billion of debts. Shares in Dubai fell to a two-month low yesterday following the reshuffle.

“Dubai is trying to get the maximum investor subscription for this $10 billion bond issue,” said Christopher Davidson, a professor at Durham University in the U.K. and author of the 2008 book “Dubai: The Vulnerability of Success.” “Sheikh Mohammed needs to put new people in who are not tainted by the bubble economy of past years.”

The Dubai Financial Market General Index yesterday lost 2.6 percent, falling to 2,073.66. Abu Dhabi’s measure slipped 2 percent to its lowest since Sept. 2.

The sheikh’s sweeping changes introduced “a degree of uncertainty” which unsettled the markets, said Farouk Soussa, an analyst with Standard & Poors in Dubai.

Bond Issue

The Dubai government is in the final stages of preparing the second half of the bond issue, Alabbar said on Nov. 20. Investors will buy a “reasonable chunk” of the bond, he said. The bonds will be issued before the end of the year, Sheikh Ahmed bin Saeed Al-Maktoum, chairman of the emirate’s Supreme Fiscal Committee, said on Nov. 16.

The remainder is likely to be bought by the federal government in Abu Dhabi, which has 90 percent of the oil in the U.A.E. and bailed out Dubai in February with a $10 billion bond issue subscribed entirely by the U.A.E. central bank.

Dubai’s real-estate market was the worst affected by the global financial crisis. Home prices have tumbled about 50 percent from their peak, and may drop another 20 percent this year, Deutsche Bank AG said in June.

Waterfront Development

Bin Sulayem is chairman of Dubai World, a state-run holding company that has about $59 billion of debt and other liabilities paydayloans. It controls property developer Nakheel PJSC, which has had to cancel plans for a new waterfront development the size of Hong Kong Island. Nakheel has to repay a $3.52 billion bond maturing in December.

Al-Gergawi is chairman of Dubai Holding, which owns developers including Dubai Properties LLC, Sama Dubai LLC and Tatweer LLC. Tatweer has put on hold a project to build “Dubailand,” a Disneyland-style leisure park that would be three times the size of Manhattan. Alabbar is chairman of Emaar Properties PJSC, the largest developer in the U.A.E., which is building the world’s tallest tower.

The cost of protecting Dubai bonds from default rose 3 percent to 313 basis points on Nov. 20, five-year credit-default swap prices show. The contracts, which get more expensive as perceptions of credit quality worsen, traded at 287 basis points on Oct. 20, the lowest in 12 months, Bloomberg data show.

‘More Carefully’

The emirate will study the viability of projects more closely in the future, Sheikh Mohammed said Sept. 9. “We’ll be more careful now,” he said.

In June, Emaar said it was in talks to combine with Dubai Properties, Sama Dubai and Tatweer as it aims to control the supply of new buildings amid a glut of homes.

The replacement of the DIFC governor is part of efforts to improve the efficiency of government institutions and companies, and “consolidate the emirate’s growing importance as an international center for finance, business, trade, tourism and all services,” Mohammed Ibrahim Al Shaibani, director-general of the ruler’s court, said in an e-mailed statement on Nov. 20.

Ahmed Humaid al-Tayer, the new governor of the DIFC, which is home to regional offices of banks including Goldman Sachs Group Inc. and Deutsche Bank AG, said Nov. 21 he would pursue the same strategy as his predecessor. Al-Tayer is also chairman of Emirates NBD PJSC, the U.A.E.’s biggest bank by assets, and remains a member of the ICD board along with Al Shaibani, the head of the ruler’s court.

The other four board members are Sheikh Mohammed, two of his sons and his uncle.

The four sidelined Dubai powerbrokers have to some extent been made scapegoats, said Simon Henderson, an expert on the Gulf monarchies at the Washington Institute for Near East Policy.

“They were given authority and access to capital and told to go out there and expand Dubai, they were given a license and latitude, and to that extent, they were obeying orders,” he said.

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