Capital Partners - TECOM Commercial Dispute

UNCLAS SECTION 01 OF 02 ABU DHABI 002924 SIPDIS SENSITIVE STATE FOR EB/CBA - BEHRENS STATE PASS USTR FOR DOUG BELL E.O. 12958: N/A TAGS: EINV ECON AE SUBJECT: Capital Partners - TECOM Commercial Dispute Ref: Abu Dhabi 2772 (Notal) This cable contains business proprietary information. ¶1. (SBU) Summary: Embassy has received several Congressional and USTR inquiries in recent weeks over U.S. firm Capital Partners' dispute with Dubai's TECOM Investments (a member of Dubai Holding) as well as inquiries from former Sec HHS Thompson. TECOM executive Chairman Ahmed bin Byat told Ambassador on July 5 that the key issue in the Riverwalk dispute was Capital Partner's October 20, 2005 non-payment of a required lease payment for the property. Bin Byat complained that Capital Partners were pushing a commercial dispute into the political arena and suggested that if Capital Partners wanted to pursue the matter further, they would need to take legal action. The UAE-based counsel for Capital Partners/McKinley Reserve argued in a separate telcon with Econchief that the fact that TECOM sold land that it did not control put TECOM in default from the beginning of the contract. End Summary ¶2. (SBU) On July 5, Ambassador and Econchief met with Ahmed bin Byat, the Executive Chairman of TECOM Investments to follow up on discussions related to the ongoing commercial dispute between TECOM and U.S. company Capital Partners. At the U.S. company's request, Ambassador had raised the dispute with UAE Vice President/Prime Minister and Ruler of Dubai Sheikh Mohammed bin Rashid Al-Maktoum on July 1. Embassy and Consulate General officers have previously been involved in attempting to resolve this commercial dispute. Bin Byat gave TECOM's position on the dispute and correspondence between TECOM and Capital Partners related to the dispute. On July 9, Econchief discussed the meeting with Capital Partners/McKinley Reserve's UAE based counsel, David Stockwell. ¶3. (SBU) Bin Byat explained that Capital Partners had failed to make a required payment on its lease of the land on October 20, 2005 despite being given an extension to make a payment. He provided Ambassador with an e-mail exchange showing that the CFO of Capital Partners, Robert Sutton, agreed that "all other provisions of the Lease and Development Agreement" of June 15 applied with the extension to October 20, 2005. Bin Byat also provided a copy of a letter dated October 20 from TECOM to Capital Partners stating that TECOM "hereby gives you notice of termination of the Development 
Agreement as your failure to make payment under the terms of the Lease is a breach of Clause 23.9 of the Development Agreement which states that "TECOM may terminate this Agreement on immediate written notice to the Developer where the Developer has failed to pay any installment of the Rent due under any of the leases." ¶4. (SBU) Bin Byat explained that Capital Partners, a Dubai Free Zone Enterprise, was "kind of vague" on its sources of financial support. TECOM, therefore, had wanted to ensure that Capital Partners could make its payments. Although TECOM had lost trust in Capital Partners, he explained, Bin Byat said that TECOM had remained willing to work with the U.S. investors backing the project. In fact, he noted, that TECOM had worked to identify alternative investment locations and offered the investors a substantial discount on any future investment, to match the amount that Capital Partners claimed to have invested in Dubai. He acknowledged that these negotiations subsequently broke down. In a subsequent Telcon with Econoff, Stockwell explained that - in the company's view - these alternative plots offered were not comparable to the Riverwalk site. Despite that fact, when McKinley Reserve expressed interest in two tower blocks that had been presented as opportunities, TECOM withdrew them from consideration. (Note: McKinley Reserve/Capital Partners has engaged Dubai Attorney -- and former U.S. Consul General -- David Stockwell as a local legal representative). ¶5. (SBU) Bin Byat acknowledged that there was an archeological site on the original site Capital Partners was planning to develop, but argued that the issue was one of non-payment rather than ownership of an archeological site, since TECOM was selling "built up area" not land and that TECOM compensated Capital Partners for land with a greater built up area. Stockwell later explained that this was a major issue, since it demonstrated that TECOM was in default of the agreement from the day of its signature. TECOM, he noted did not have ownership of the land that it was providing to Capital Partners, and it would be irresponsible for Capital Partners to have made an additional payment until this issue had been resolved. (Note: In Charles Mulcahy's October 19 e-mail to CG Dubai requesting assistance in securing an extension of the payment date for 30-60 days after October 20, he does not mention the archeological site noting that "The Capital Partners project in Dubai is moving ahead on a positive basis. Several sales have occurred concerning the property, however, representatives of the company have experienced difficulty raising the necessary project financing, as the current legal structure in Dubai does not provide the type of securitization of investment interest customary for U.S. investors. Capital Partners has a major $25 million payment due to TECOM on Thursday, October 20, 2005. Because of the inability to use customary financing vehicles, payments to TECOM have been based upon resources of Capital Partners and various sales involving the property. Capital Partners will need an extension of the payment date beyond October 20, 2005 for approximately 30-60 days." He goes on to write that "Capital Partners has fulfilled all of its obligations concerning the TECOM agreement, however, the sales of various parts of the property require some additional time to provide the necessary cash flow." End Note.) ¶6. (SBU) Bin Byat also said that TECOM had "no interest in working with this group any more," and that the original parcel of land was gone. He suggested that, should Capital Partners/McKinley Reserve wish to pursue this matter further, they would need to take legal action. ¶7. (SBU) On July 16, Charles Mulcahy, the Senior Advisor to McKinley Reserve, sent bin Byat a letter again proposing to settle the dispute without resorting to legal action, and requesting a response by August 7. The substance of the proposal is that: -- After the title (ownership) problems have been resolved with the various government entities in Dubai, the RiverWalk property would be sold by the Government of Dubai/TECOM and MKR/CP at a mutually agreeable price and terms. -- The proceeds of the sale would be distributed 50/50 between the Government of Dubai/TECOM and MKR/CP. MKR/CP is willing to consider any reasonable proposal of the Government of Dubai/TECOM including a payment below the above referenced 50/50 split. -- This proposed solution would end the dispute; and, the Government of Dubai/TECOM and MKR/CP would both move on to other matters. ¶8. (SBU) Comment: Congen and Embassy will continue to monitor the dispute and will remain in contact with the U.S. firm. In an effort to increase foreign investment in the local property market, Dubai recently announced plans to set up an escrow account, whereby investors' deposits would be placed in escrow and only turned over to developers when contractual conditions were met. It is not clear whether this would extend to investors who are also developers, such as Capital Partners. End Comment. SISON