DUBAI FINANCE DEPARTMENT STOIC ABOUT DUBAI INC. DEBT

S E C R E T DUBAI 000253

SIPDIS

DEPARTMENT FOR NEA/FO; NEA/ARP/BMASILKO

E.O. 12958: DECL: 6/18/2019
TAGS: EFIN ECON EINV PGOV AE
SUBJECT: DUBAI FINANCE DEPARTMENT STOIC ABOUT DUBAI INC. DEBT
SITUATION

REF: A. A) DUBAI 166 (NOTAL)

B. B) DUBAI 111

C. C) ABU DHABI 189

CLASSIFIED BY: Paul Sutphin, Consul General, Consulate General
Dubai, UAE.
REASON: 1.4 (b),(d)

1. (S) Summary. Two senior Dubai Department of Finance (DDF)
officials told EmbOffs June 15 that Dubai Inc.'s debt woes were
caused by poor coordination and debt management. The DDF is
working with Dubai's Supreme Fiscal Committee to determine how
the $10 billion bond issued in February will be disbursed
(reftels). Developer Nakheel has received a cash infusion, and
is subject to strict DDF reporting requirements. Dubai is
talking to the UAE Central Bank and foreign investors about
floating the second $10 billion tranche. While contractors wish
the process was faster, it is clear that Dubai officials believe
careful review and oversight is required. End Summary.




2. (S) During a June 15 meeting with EconChief and PolEconOff,
Dubai Department of Finance Deputy Director General Mohammed
Alshehi and Funds Management Director Marwan Abedin expressed
disappointment in the state of Dubai's "private" finances.
Noting that the Department of Finance funds all of the
Government of Dubai entities except Dubai Electricity and Water
Authority (DEWA),Alshehi and Abedin were quick to note the DDF
had not been involved in Dubai Inc.'s debt amassment, and DDF
debt was less than USD 5 billion. Abedin said that, in addition
to the fact that Dubai Inc. firms lacked sufficient coordination
and oversight, short-term debt had been used to finance
long-term projects.




3. (S) The Department of Finance is now working with other
entities, such as the Supreme Fiscal Committee (of which Alshehi
is a member) and foreign consultants (reportedly Rothschild),to
set up a "Support Fund" to disburse funds from the $10 billion
bond purchased by the UAE Central Bank in February (Ref C).
Although fund organization is only 2/3 complete, Abedin said
"Support Fund" disbursals would have strict terms and
conditions. Developer Nakheel has already received a portion of
the funds, which will also be subject to these terms. Alshehi
noted repeatedly that the DDF is requiring all Dubai Inc. firms
to provide detailed information about how the funding is to be
disbursed, including to subcontractors. Although the DDF is not
responsible for paying subcontractors, he noted that foreign
diplomats had approached him urging payment to their nationals.




4. (S) Turning to the projected $1 billion Dubai Government
deficit in 2009, part of a fiscal stimulus package announced in
late 2008, Alshehi said government departments had been tasked
to cut expenditures. Abedin added that the DDF may use a
portion of the $10 billion bond to cover any deficit.




5. (S) Abedin said Dubai is currently talking to the UAE Central
Bank about a second $10 billion bond tranche. When asked about
press reports indicating sovereign wealth funds were interested
in the bond, Abedin said there was some interest but suggested
no decisions had been made. Abedin said Dubai was seeking a
longer term (7-10 year) bond, in an effort to match bond tenors
to infrastructure projects with long-term returns. He added
that Dubai would be willing to pay a 100 basis point premium to
secure a longer term.




6. (S) Comment. While local and foreign contractors and
subcontractors continue to face payment delays, forced contract
renegotiation, and project cancellation, it is clear that Dubai
officials are determined to balance the checkbook. However, the
challenge is significant and not without risk. Alshehi was
reluctant to discuss why DDF Director General Nasser Al Shaikh
-- widely believed to be driving the clean-up effort -- was
removed in May, noting simply that the new Director General will
continue implementation of the 2009-2012 medium-term plan. End
Comment.

SUTPHIN