U.S. CONTRACTORS STILL OWED FOR DUBAI PROJECTS

C O N F I D E N T I A L SECTION 01 OF 03 DUBAI 000457

SENSITIVE
SIPDIS

DEPARTMENT FOR NEA/FO; NEA/ARP/BMCGOVERN;COMMERCE FOR TYLER
HOFFMAN

E.O. 12958: DECL: 10/22/2019
TAGS: ETRD KIPR EFIN ECON PREL AE
SUBJECT: U.S. CONTRACTORS STILL OWED FOR DUBAI PROJECTS

REF: A. A DUBAI 000392

B. B DUBAI 000354

DUBAI 00000457 001.2 OF 003


CLASSIFIED BY: Justin Siberell, Consul General.
REASON: 1.4 (b),(d)

1. (C) SUMMARY: U.S. companies who in part helped fuel the real
estate and construction boom in Dubai continue to lament the
lack of payment to them by both the Government of Dubai entities
and private property developers across Dubai. The amount of
money owed to U.S. contractors varies quite significantly.
However, anecdotal reports coming from individual U.S. company
disclosures to USG officials puts the total so far just short of
USD 400 million. It is not clear whether the USD 400 million is
the bulk of money owed or represents the tip of the iceberg of a
much larger amount of IOUs to U.S. entities. The sentiment of
the vast majority of contractors who recently convened at the
Consul General's residence centered on frustration over the lack
of clarity and communication from authorities regarding plans to
repay debts. Contractors are now considering writing off some
of these debts owed to them as the fiscal reporting year ends
and they begin the process of closing their books. END SUMMARY.



--------------

NO ACCOUNTABILITY AND NONPAYMENT RAMPANT

--------------




2. (C) Hamed I. Zaghw, Managing Director in the Dubai office for
Parsons, a U.S. based international construction and engineering
firm, told Consul General and econoff in a gathering of U.S.
business representatives at the Consul General's residence that
there is no accountability among Dubai based developers when it
comes to honoring debts owed to his company and others. Zaghw
fears Parsons may never recover a substantial amount of funds
owed to it by the Government of Dubai and other private
developers. Zaghw reported to the Consul General that Parsons
is owed approximately USD 200 million for services it provided
to Government of Dubai entities, primarily Dubai's Roads and
Transport Authority (RTA),and other local developers. Zaghw
noted that the company has inquired about the unpaid debts at
the highest levels within the Dubai government. However, senior
Dubai government officials have only expressed sympathy for the
company's plight, but have not offered any commitments or
clarity regarding a repayment roadmap or plan to resolve
liabilities.




3. (C) Meanwhile, private developers also have been slow to pay
or have simply refused to pay debts or honor contracts in part
because of real cash flow constraints, but in some cases simply
because of opportunism. Zaghw speculated that some small and
medium sized developers have simply been refusing to pay, not
because of lack of funds, but to exploit the perception that the
crisis has made all developers broke. The current trend of
nonpayment has been especially exacerbated by the large
developers in Dubai which tend to set the tone for the rest of
the market. Ali Odeh, Chief Executive Officer for Turner
International's Middle East operations, noted that smaller and
medium sized developers look at large developers such as Nakheel
who have all but stopped paying contractors and naturally
question their own obligation to pay. Nakheel is currently
committing the bulk of its cash to pay back bond holders (Ref A).



--------------

CONSOLIDATION: A TACTIC TO HIDE DEBT?

--------------




4. (C) Zaghw also raised concerns about how the wave of
consolidation among developers has made it increasingly
difficult to maintain a consistent record of debts owed to his
company (Ref B). Victor Arca, Director at Thinkwell, a small
architectural design company, echoed a similar sentiment to
Zaghw, explaining that many new managers at the newly
consolidated developers have begun to deny responsibility for
previous debts and contracts owed to his firm. Apparently, the
frequent changing of management at consolidated developers has
left an accountability vacuum as it relates to honoring or
managing debt obligations. Leslie Orr, director of Middle East
operations for CB Richard Ellis Property Management Company,
said that there is a real lack of empowerment among the growing

DUBAI 00000457 002.2 OF 003


stable of interim managers and new leadership at the heavily
in-debt and newly consolidated developers.




5. (C) Many of the U.S. contractors participating in the round
table discussion with the Consul General and econoff admitted
that they feared the consolidation trend would potentially
facilitate the disappearance of debts owed to their companies.
Although, there is no specific evidence that debts have been
nullified as a result of the recent wave of consolidation, many
contractors complained that they have not been able to connect
directly with decision makers and worse have not been able to
get a commitment from developers about the total amounts owed to
them. There is also significant uncertainty as to the quality
of book keeping by the major developers who owe so much to so
many. Jack Greenwald, Partner at the Dubai law firm of
Chadbourne and Parke LLP, noted that all companies should be
actively negotiating with individual debtors to pin down a
number for total debts owed in order to be able to collect once
the market recovers.



--------------

PATIENCE IS KEY TO RECOVER DEBTS

--------------




6. (C) Ali Odeh noted in the same meeting that patience would be
the most critical tool that U.S. companies could utilize in the
current environment. Mr. Odeh explained that his company had
already taken significant haircuts in debts owed to it by
Nakheel and other developers. For example Turner had also moved
to accept asset and land acquisitions in place of cash from
developers. Odeh explained that the negotiated settlements were
unprecedented in Turner's history, but more importantly
represented a way forward for his company to recoup some losses
and show solidarity with Nakheel and the Government of Dubai
during this tough time. Odeh is confident that patience will
bear the most fruit for his and other companies who give a break
to cash-strapped Dubai, Inc and continue to "show loyalty" to
the city in spite of the mounting IOUs on their financial
statements. Odeh urged U.S. companies to seek new business in
nearby markets less affected by the financial crisis, in
particular Doha, Abu Dhabi and Saudi Arabia. In fact, Mr. Odeh
pointed out that Turner had logged some of its best order
numbers in the last six months due these tactics.



--------------

LEGAL RECOURSE NOT A VIABLE PLAN

--------------




7. (C) Odeh cautioned his peers not to pursue legal action
against delinquent companies or, worse yet, government entities
in Dubai. He warned that legal recourse is not a prudent
approach to deal with mounting debts. Most of the U.S.
contractors present at Sunday's discussion conceded that they
had taken the legal option off the table mainly because of the
bleak outlook for arriving at a resolution. Odeh explained that
in addition to incurring huge legal fees, a lawsuit would almost
certainly affect a company's ability to operate in Dubai in the
long-term. According to Odeh, companies that filed lawsuits in
the past against Dubai, Inc entities had been black listed by
authorities. Also, although Jack Greenwald noted that firms
should seek legal counsel, he too reiterated that they avoid
going down the road of litigation. Greenwald said that the
Dubai courts are currently swamped with contract dispute cases.
He also revealed that the Dubai Courts had been particularly
slow in carrying out simple administrative processes on contract
dispute cases with clients spending up to a year waiting to come
before a judge.



--------------

COMMENT

--------------

DUBAI 00000457 003.2 OF 003






8. (C) The growing chorus of anxious contractors awaiting
payment from Dubai Inc and the Government of Dubai merely adds
to the ongoing saga of Dubai's economic hardship. Also,
although high profile developers such as Nakheel have begun to
pay back bond holders, contractors continue to struggle to
operate in Dubai under a mounting load of IOUs from Nakheel and
others. As Dubai pushes through this tough economic environment
and early signs of a recovery begin to emerge, there is now
legitimate concern that debts owed to contractors may be
forgotten, lost or even nullified amid the large wave of
consolidations. As legal recourse remains an ineffective way
for U.S. contractors to pursue payments for services rendered,
the only option is to continue to negotiate and wait for
business to pick up. END COMMENT
SIBERELL