THE UAE FINANCIAL SITUATION AND THE KUBLER ROSS MODEL

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 001360

SIPDIS

DEPARTMENT FOR NEA/FO, NEA/ARP (BMASILKO) AND EEB
STATE PLEASE PASS USTR (BUNTIN)

E.O. 12958: DECL: 11/25/2018
TAGS: EFIN ECON EINV ENRG PREL PGOV AE
SUBJECT: THE UAE FINANCIAL SITUATION AND THE KUBLER ROSS MODEL

REFS: A) DUBAI 417
B) ABU DHABI 1287
C) ABU DHABI 1270
D) ABU DHABI 1225
E) ABU DHABI 1221
F) ABU DHABI 1141
G) ABU DHABI 1079

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Classified by Ambassador Richard G. Olson for reasons 1.4 (b,d).


1. (U) This is a joint Embassy Abu Dhabi - Consulate General Dubai
cable.


2. (C) Summary. The UAE, Dubai in particular, appears to be moving
rapidly through the five stages of grieving identified in the
Kubler-Ross model. While most Emirati contacts initially claimed
that global financial crisis would have little impact on the UAE, it
is now obvious they were simply in denial. Officials -- some angrily
-- rejected rumors Dubai was bargaining for a bailout from Abu Dhabi.
Today, more circumspect interlocutors admit that "federal" (read:
Abu Dhabi) support, particularly for Dubai companies, is needed if
the UAE economy is to weather the storm and continue strong, if
lower, growth. On November 23, it was announced that the two largest
mortgage lenders in Dubai would be merged into a federal entity, and
a senior Dubai official for the first time outlined publicly the
Emirate's financial challenges. While mergers and other indications
of economic weakness are likely to continue into 2009, observers
believe that increasing government public acknowledgement of the
challenges ahead will go a long way to reassuring domestic
confidence. End Summary.


3. (C) The shifting response to the global economic downturn in the
UAE almost follows the Kubler-Ross model of the five stages of grief:
denial, anger, bargaining, depression, and acceptance. In September,
most contacts told us they expected UAE development plans would be
unaffected by the global slowdown (Ref G). Minister of Foreign Trade
Sheikha Lubna Al Qassimi told visiting USTR Schwab that the UAEG was
projecting a positive message to instill confidence.


4. (C) However, investors were not assured by the spin and local
stock markets continued to decline. Dubai Financial Market Index has
fallen to its lowest level since introduction in 2000, while the Abu
Dhabi Exchange has lost half its value since July. Analysts argue
that the government's failure to publicly acknowledge the likelihood
of a slowdown, and Abu Dhabi's perceived willingness to "bailout"
debt-ridden Dubai enterprises, is contributing to uncertainty.
Interbank lending rates continue to exceed four percent, and major
UAE companies admit they are having trouble accessing the capital
necessary for expansion plans (septel). Emirati citizens are also
feeling the pinch: Deputy Prime Minister Sheikh Hamdan bin Zayed Al
Nahyan told the Ambassador that his brother Crown Prince Sheikh
Mohammed bin Zayed Al Nahyan has set up a $30 billion emergency fund
for Emirati citizens and entities. Dubai sachem and philanthropist
Juma Al Majid told the Consul General that local charities are
witnessing a 20 percent increase in Emiratis seeking support.


5. (C) The continued downturn and crisis of confidence now appears to
have spurred a public government response. Dubai mortgage giants
Amlak and Tamweel (septel) were merged into the small federal Real
Estate Bank on November 23. While the merger was in the works for
some time, and rumors circulated that one or the other was bankrupt,
the "federal" (read "Abu Dhabi takeover") aspect of the merger
indicates officials recognized public federal support was needed. On
November 24, Dubai Executive Council member and Chairman of EMAAR
Properties (Dubai's largest developer) Mohammed Ali Alabbar gave a
major speech to try to dispel rumors Dubai is bankrupt. The first
official to publicly address Dubai's financial balance sheet, Alabbar
said that the Emirate and related entities owe $30 billion, while
total assets exceed $350 billion. (Note: Alabbar has been named as
Chair of a Dubai committee to monitor and advise on the impact of the
financial crisis, along with several other Dubai senior financial
figures.)


6. (C) Despite the public claims of strength, all indications are
things are likely to get worse before they get better; new property
prices in Dubai continue to decline. Square footage prices in
EMAAR's new landmark, Burj Dubai, have fallen 33 percent over the
last month. Rival Dubai government developers EMAAR and Nakheel are
rumored to be in merger talks (NOTE: Rumors EMAAR Chairman Alabbar
emphatically denied publicly, even while trying explain that his
company's fundamentals are sound despite its stock losing 80% of its
value). Reports of the merger of Abu Dhabi-owned Abu Dhabi
Commercial Bank and National Bank of Abu Dhabi continue, with one
source reporting the merger is already underway. Mashreq CEO Abdul
Aziz Al-Ghurair told Ambassador and CG that cross emirate mergers
would make more commercial sense (since they would expand customer
base); a senior Citi acknowledged this was true, but unlikely given
that each Emirate wants to promote its "own" banks. A senior Gulf

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diplomat told the Ambassador that Dubai had offered Abu Dhabi a stake
in Emirates Airlines, which had been declined (but rumors persist
that a major chunk of Emirates now belongs to Abu Dhabi). Tatweer
CEO Muntafiq told Ambassador and CG in early November that Dubai was
likely to face a financial "hurricane" in the coming weeks. Both
Mashreq (UAE's second-largest bank) Chairman Abdulaziz al Ghurair and
leading Dubai expat businessman Abbas Shahdadpuri said that while
property rents - a key source of income to Dubai's elite - have so
far held, a strong "correction" is coming and prices should begin to
drop, perhaps drastically, soon. Al Majid (protect) even made an
unprecedented and emotionally delivered request to the Consul General
that the USG should encourage Abu Dhabi to support Dubai for the good
of the nation.


7. (C) However, even oil-rich Abu Dhabi is showing signs of a
slowdown. The COO of Abu Dhabi's flagship Mubadala investment firm
told the Ambassador on November 18 that 2009 would be a year of
"consolidation." Alabbar told the Ambassador that President Sheikh
Khalifa bin Zayed Al Nahyan (who has the final word on financial
matters) would institute a slowdown in development. With oil prices
continuing to fall, Abu Dhabi will only be more cautious about
financial matters.


8. (C) Comment. The impact of the world economic crisis may
ultimately be good for the UAE, applying Darwinian selection to
non-viable projects and forcing a focus on both quality and
sustainability in the country's development. Most observers agree
that development was happening too fast and the property market was
overheated and wrought by rampant speculation, spurring inflation and
revealing fundamental weaknesses in a government only 37 years old.
A slowdown will be disappointing to many here who thought they were a
model of economic success, but in the long-term the country is likely
to benefit from the breather. End Comment.
OLSON